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LG Electronics Inc. Separate Interim Financial Statements September 30, 2019 and 2018

LG Electronics Inc. Index September 30, 2019 and 2018

Page(s)

Report on Review of Interim Financial Statements ........................................... 1 - 2

Separate Interim Financial Statements

Separate Interim Statements of Financial Position ................................................. 3 - 4

Separate Interim Statements of Profit or Loss ........................................................ 5

Separate Interim Statements of Comprehensive Income ........................................... 6

Separate Interim Statements of Changes in Equity ................................................... 7

Separate Interim Statements of Cash Flows.............................................................. 8

Notes to the Separate Interim Financial Statements .............................................. 9 - 71

Report on Review of Interim Financial Statements

(English Translation of a Report Originally Issued in Korean) To the Shareholders and Board of Directors of LG Electronics Inc. Reviewed Financial Statements We have reviewed the accompanying separate interim financial statements of LG Electronics Inc. (referred to as the “Company”). These financial statements consist of the separate interim statement of financial position of the Company as at September 30, 2019, and the related separate interim statements of profit or loss and comprehensive income for the three-month and nine-month periods ended September 30, 2019 and 2018, and separate interim statements of changes in equity and cash flows for the nine-month periods ended September 30, 2019 and 2018, and a summary of significant accounting policies and other explanatory notes, expressed in Korean won. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these separate interim financial statements in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (“Korean IFRS”) 1034 Interim Financial Reporting, and for such internal control as management determines is necessary to enable the preparation of separate interim financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to issue a report on these separate interim financial statements based on our review. We conducted our review in accordance with quarterly or semi-annual review standards established by the Securities and Futures Commission of the Republic of Korea. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Korean Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

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Conclusion Based on our review, nothing has come to our attention that causes us to believe the accompanying separate interim financial statements are not presented fairly, in all material respects, in accordance with Korean IFRS 1034 Interim Financial Reporting. Other Matters We have audited the separate statement of financial position of the Company as at December 31, 2018, and the related separate statements of profit or loss, comprehensive income, changes in equity and cash flows for the year then ended, in accordance with Korean Standards on Auditing. We expressed an unqualified opinion on those financial statements, not presented herein, in our audit report dated March 7, 2019. The separate statement of financial position as at December 31, 2018, presented herein for comparative purposes, is consistent, in all material respects, with the above audited statement of financial position as at December 31, 2018. Review standards and their application in practice vary among countries. The procedures and practices used in the Republic of Korea to review such financial statements may differ from those generally accepted and applied in other countries. November 14, 2019 Seoul, Korea

This report is effective as at November 14, 2019, the review report date. Certain subsequent events or circumstances, which may occur between the review report date and the time of reading this report, could have a material impact on the accompanying separate interim financial statements and notes thereto. Accordingly, the readers of the review report should understand that there is a possibility that the above review report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.

LG Electronics Inc.Separate Interim Statements of Financial Position September 30, 2019 and December 31, 2018

Notes(Unaudited)

AssetsCurrent assets

Cash and cash equivalents 4,31 1,075,484 1,109,883Deposits held by financial institutions 4,31 80,500 80,500Trade receivables 4,5,31 4,487,770 3,726,012Other receivables 4,5,31 553,861 545,431Other financial assets 4,6,31 - 1,281Inventories 7 1,363,495 1,505,385Current income tax assets 1,731 3,157Contract assets 8 507,971 465,307Other current assets 551,365 401,387Assets held for sale 32 96,266 -

8,718,443 7,838,343Non-current assets

Deposits held by financial institutions 4,31 1,583 1,211Other receivables 4,5,31 186,750 243,485Other financial assets 4,6,31 59,972 43,001Property, plant and equipment 9 7,260,117 7,278,238Intangible assets 9 1,501,342 1,671,617Deferred income tax assets 1,019,949 967,496Investments in subsidiaries, associates and joint ventures 10 9,007,276 9,108,014Investment properties - 93,999Contract assets 8 112,121 90,092Other non-current assets 573,677 529,967

19,722,787 20,027,120Total assets 28,441,230 27,865,463LiabilitiesCurrent liabilities

Trade payables 4,31 5,777,259 5,553,794Borrowings 4,11,31 857,839 768,275Lease liabilities 4,12,31 40,509 -Other payables 4,31 1,616,137 2,371,053Other financial liabilities 4,6,31 8,217 6,453Current income tax liabilities 14,515 -Provisions 14 488,035 349,001Contract liabilities 8 404,611 458,539Other current liabilities 1,471,546 1,251,123

10,678,668 10,758,238Non-current liabilities

Borrowings 4,11,31 7,404,598 7,132,237Lease liabilities 4,12,31 61,351 -Other payables 4,31 1,141 1,011Other financial liabilities 4,6,31 96,568 83,759Net defined benefit liabilities 13 724,234 305,921Provisions 14 90,092 124,467Contract liabilities 8 810 1,034Other non-current liabilities 106,650 95,916

8,485,444 7,744,345Total liabilities 19,164,112 18,502,583

(in millions of Korean won) September 30, 2019 December 31, 2018

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LG Electronics Inc.Separate Interim Statements of Financial Position September 30, 2019 and December 31, 2018

Notes(Unaudited)

(in millions of Korean won) September 30, 2019 December 31, 2018

Equity Paid-in capital: 15

Share capital 904,169 904,169Share premium 3,088,179 3,088,179

Retained earnings 16 5,409,391 5,460,710Accumulated other comprehensive loss 17 (91,802) (57,359)Other components of equity 18 (32,819) (32,819)

Total equity 9,277,118 9,362,880Total liabilities and equity 28,441,230 27,865,463

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LG Electronics Inc.Separate Interim Statements of Profit or LossThree-month and Nine-month Periods Ended September 30, 2019 and 2018

NotesThree months Nine months Three months Nine months

Net sales 19 6,703,747 22,107,818 7,732,482 23,510,188Cost of sales 20 5,289,510 16,917,322 5,990,965 18,078,397Gross profit 1,414,237 5,190,496 1,741,517 5,431,791

Selling and marketing expenses 20,21 730,164 2,202,810 713,341 2,119,449Administrative expenses 20,21 136,246 402,021 143,060 409,069Research and development expenses 20,21 533,242 1,505,882 485,359 1,397,788Service costs 20,21 245,621 535,057 149,041 393,630

Operating profit (loss) (231,036) 544,726 250,716 1,111,85520Financial income 22 38,191 100,503 45,200 156,172Financial expenses 23 92,074 285,281 108,309 308,037Other non-operating income 24 379,741 829,400 120,338 678,828Other non-operating expenses 25 366,101 858,151 124,933 517,797Profit (loss) before income tax (271,279) 331,197 183,012 1,121,021Income tax expense (benefit) (69,282) 75,196 13,169 273,300

Profit (loss) for the period (201,997) 256,001 169,843 847,721

Earnings (loss) per share during the period (in Korean won) :26Earnings (loss) per ordinary share (1,124) 1,418 942 4,704Earnings (loss) per preferred share (1,110) 1,456 955 4,742

Period Ended September 30(in millions of Korean won, except per share amounts) 2019 (Unaudited) 2018 (Unaudited)

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LG Electronics Inc.Separate Interim Statements of Comprehensive IncomeThree-month and Nine-month Periods Ended September 30, 2019 and 2018

NotesThree months Nine months Three months Nine months

Profit (loss) for the period (201,997) 256,001 169,843 847,721Other comprehensive loss, net of tax

Items that will not be reclassified subsequently to profit or loss:Remeasurements of the net defined benefit liability 13 (35,049) (169,391) (39,149) (43,924)Financial assets at fair value through other comprehensive income 6 (1,339) (131) 110 1,569

Items that will be reclassified subsequently to profit or loss:Cash flow hedges 31 (10,838) (34,312) (594) (11,609)

Other comprehensive loss for the period, net of tax (47,226) (203,834) (39,633) (53,964)

Total comprehensive income (loss) for the period, net of tax (249,223) 52,167 130,210 793,757

(in millions of Korean won) 2019 (Unaudited) 2018 (Unaudited)Period Ended September 30

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LG Electronics Inc.Separate Interim Statements of Changes in EquityNine-month Periods Ended September 30, 2019 and 2018

(in millions of Korean won) Notes

Balance at January 1, 2018 3,992,348 5,602,967 (17,639) (32,819) 9,544,857Changes in accounting policy 　- 11,830 (8,289) 　- 3,541Restated total equity 3,992,348 5,614,797 (25,928) (32,819) 9,548,398Total comprehensive income (loss):

Profit for the period - 847,721 - - 847,721Remeasurements of the net defined benefit liability 13 - (43,924) - - (43,924)Financial assets at fair value through other comprehensive income 6 - - 1,569 - 1,569Cash flow hedges 31 - - (11,609) - (11,609)

Total comprehensive income (loss) - 803,797 (10,040) - 793,757

Transactions with owners:Dividends 16 - (72,885) - - (72,885)

Total transactions with owners - (72,885) - - (72,885)Balance at September 30, 2018 (Unaudited) 3,992,348 6,345,709 (35,968) (32,819) 10,269,270

Balance at January 1, 2019 3,992,348 5,460,710 (57,359) (32,819) 9,362,880Changes in accounting policy 2 　- (2,020) 　- 　- (2,020)Restated total equity 3,992,348 5,458,690 (57,359) (32,819) 9,360,860Total comprehensive income (loss):

Profit for the period - 256,001 - - 256,001Remeasurements of the net defined benefit liability 13 - (169,391) - - (169,391)Financial assets at fair value through other comprehensive income 6 - - (131) - (131)Cash flow hedges 31 - - (34,312) - (34,312)

Total comprehensive income (loss) - 86,610 (34,443) - 52,167

Transactions with owners:Dividends 16 　- (135,909) 　- 　- (135,909)

Total transactions with owners - (135,909) - - (135,909)Balance at September 30, 2019 (Unaudited) 3,992,348 5,409,391 (91,802) (32,819) 9,277,118

Accumulated

ComponentsEquityEarnings

Other

LossComprehensive

Other

Capital of EquityPaid-in Retained Total

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LG Electronics Inc.Separate Interim Statements of Cash Flows

Nine-month Periods Ended September 30, 2019 and 2018

(in millions of Korean won) Note

Cash flows from operating activitiesCash generated from operations 27 285,353 1,400,174Interest received 12,448 16,654Interest paid (186,894) (176,657)Dividends received 253,567 188,532Income tax paid (51,126) (6,735)

Net cash inflow from operating activities 313,348 1,421,968

Cash flows from investing activitiesDecrease in other receivables 52,829 54,141Proceeds from redemption and disposal of other financial assets 5,019 842Proceeds from disposal of property, plant and equipment 24,941 32,834Proceeds from disposal of intangible assets 13 1,920Proceeds from disposal of investment properties 95,238 -Proceeds from withdrawal and disposal of investments in subsidiaries, associates and joint ventures 229,979 1,544Proceeds from disposal of assets held for sale - 3,840Transfer of business 27 529 46,130Increase in deposits held by financial institutions (372) (144)Increase in other receivables (45,302) (38,790)Acquisition of other financial assets (10,159) (8,128)Acquisition of property, plant and equipment (576,838) (632,865)Acquisition of intangible assets (247,627) (363,597)Acquisition of investments in subsidiaries, associates and joint ventures (17,422) (1,067,084)

Net cash outflow from investing activities (489,172) (1,969,357)

Cash flows from financing activitiesProceeds from borrowings 1,060,062 1,192,214Repayments of borrowings (757,743) (571,082)Repayments of lease liabilities (25,285) -Dividend paid (135,909) (72,885)

Net cash inflow from financing activities 141,125 548,247

Effects of exchange rate changes on cash and cash equivalents 300 (1,170)Net decrease in cash and cash equivalents (34,399) (312)Cash and cash equivalents at the beginning of the period 1,109,883 1,586,258Cash and cash equivalents at the end of the period 1,075,484 1,585,946

Nine-month Period Ended September 3020182019

(Unaudited)(Unaudited)

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LG Electronics Inc. Notes to the Separate Interim Financial Statements September 30, 2019 and 2018 (Unaudited), and December 31, 2018

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1. General Information

LG Electronics Inc. (the “Company”) was spun off from LG Electronics Investment Ltd. on April 1, 2002. The Company’s shares were listed on the Korea Exchange on April 22, 2002, and some of its preferred shares, in the form of global depositary receipts (“GDRs”), are listed on the London Stock Exchange at the end of the reporting period. The Company is domiciled in Korea at Yeoui-daero, Yeongdeungpo-gu, Seoul.

As at September 30, 2019, LG Corp. owns 33.7% of the Company’s total shares, excluding preferred shares, while financial institutions, foreign investors and others own the rest.

The Company operates following major business segments: Home Appliance & Air Solution segment manufactures and sells refrigerators, washing machines, vacuum cleaners, and residential and commercial air conditioners; Home Entertainment segment manufactures and sells TVs, monitors, and digital media products; Mobile Communications segment manufactures and sells mobile communications equipment; Vehicle component Solutions segment designs and manufactures automobile parts; and Business Solutions segment manufactures and sells information displays, solar panels and others. As at September 30, 2019, the Company operates manufacturing facilities mainly in Changwon, Pyeongtaek, Gumi and Incheon in the Republic of Korea.

2. Significant Accounting Policies

Basis of Preparation

The Company maintains its accounting records in Korean won and prepares statutory financial statements in the Korean language (Hangeul) in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (Korean IFRS). The accompanying separate interim financial statements have been condensed, restructured and translated into English from the Korean language financial statements.

The financial statements of the Company are the separate interim financial statements prepared in accordance with Korean IFRS 1027 Separate Financial Statements. The separate interim financial statements for the nine-month period ended September 30, 2019, have been prepared in accordance with Korean IFRS 1034 Interim Financial Reporting. These separate interim financial statements have been prepared in accordance with Korean IFRS which is effective as at September 30, 2019.


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Changes in Accounting Policies and Disclosures

(a) New and amended standards and interpretations effective for the financial year beginning January 1, 2019.

- Enactment of Korean IFRS 1116 Leases

Korean IFRS 1116 Leases replaces Korean IFRS 1017 Leases, Interpretation 2104 Determining whether an Arrangement contains a Lease, Interpretation 2015 Operating Leases-Incentives, and Interpretation 2027 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

At inception of a contract, the Company shall assess whether the contract is, or contains, a lease. Also, at the date of initial application, the Company shall assess whether the contract is, or contains, a lease in accordance with the standard. For a contract that is, or contains, a lease, a lessee or a lessor shall account for each lease component within the contract as a lease separately from non-lease components of the contract.

A lessee is required to recognize a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. The Company elected not to apply the requirements to short-term lease (a lease term of 12 months or less at the commencement date) and low-value assets (e.g. underlying assets below $5,000).

Lessor accounting treatment did not change significantly from current Korean IFRS 1017 Leases.

Lessee accounting

A lessee shall apply this standard to its leases either:

· retrospectively to each prior reporting period presented applying Korean IFRS 1008 Accounting Policies, Changes in Accounting Estimates and Errors (Full retrospective application); or

· retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application (‘Cumulative catch-up’ transition method).

The Company applied Korean IFRS 1116 retrospectively with the cumulative effect of initially applying the standard as at January 1, 2019. The Company did not restate any comparative information. Instead, the cumulative effect of applying the standard was recognized as an adjustment to the opening balance of retained earnings at the date of initial application.

Under Korean IFRS 1116, with implementation of a single lease model, a lessee is required to recognize assets and liabilities for all lease whose lease terms are over 12 months and underlying assets are not low-value assets. A lessee is required to recognize a right-of-use asset and a lease liability representing its obligation to make lease payments.

On adoption of Korean IFRS 1116, the Company recognized right-of-use assets and lease liabilities in relation to leases which had previously been classified as ‘operating leases’ under the principles of Korean IFRS 1017. These liabilities were measured at the present value of the


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remaining lease payments, discounted using the lessee’s incremental borrowing rate as at January 1, 2019. The lessee’s weighted average incremental borrowing rate applied to the lease liabilities on January 1, 2019 was 3.15%.

For leases previously classified as ‘finance leases’, the Company recognized the carrying amount of the lease asset and lease liability immediately before transition as the carrying amount of the right-of-use asset and the lease liability at the date of initial application. The measurement principles of Korean IFRS 1116 are only applied after that date. The remeasurements to the lease liabilities were recognized as adjustments to the related right-of-use assets immediately after the date of initial application.

As at January 1, 2019, the date of initial application, further details on the impact of the application of the standard are as follows:

(in millions of Korean won) January 1, 2019

Operating lease commitments disclosed as at December 31, 2018 122,531 Discounted amount using the lessee’s incremental borrowing rate at the date of initial application 91,802

Add: finance lease liabilities recognized as at December 31, 2018 4,795

Less: short-term lease payments recognized on a straight-line basis as expenses (21,777) Less: low-value asset lease payments recognized on a straight-line basis as expenses (713)

Lease liabilities recognized as at January 1, 2019 74,107

Of which are:

Current lease liabilities 29,733

Non-current lease liabilities 44,374

Total 74,107

The associated right-of-use assets for leases were measured on a retrospective basis as if the new rules had always been applied using the lessee’s incremental borrowing rate at the date of initial application. There were no onerous lease contracts that would have required an adjustment to the right-of-use assets at the date of initial application.


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Separate statements of financial position at the date of initial application (January 1, 2019):

(in millions of Korean won) December 31, 2018

(before adjustments) K-IFRS 1116 Adjustments

January 1, 2019 (after adjustments)

Current assets Other assets 401,387 (5,039) 396,348

Current assets without financial effect 7,436,956 - 7,436,956

Total current assets 7,838,343 (5,039) 7,833,304

Non-current assets

Other receivables 243,485 - 243,485

Property, plant and equipment 7,278,238 71,755 7,349,993

Intangible assets 1,671,617 - 1,671,617

Deferred income tax assets 967,496 743 968,239

Other assets 529,967 (167) 529,800

Non-current assets without financial effect 9,336,317 - 9,336,317

Total non-current assets 20,027,120 72,331 20,099,451

Total assets 27,865,463 67,292 27,932,755

Current liabilities

Lease liabilities - 29,733 29,733

Other payables 2,371,053 (4,795) 2,366,258

Other liabilities 1,251,123 - 1,251,123

Current liabilities without financial effect 7,136,062 - 7,136,062

Total current liabilities 10,758,238 24,938 10,783,176

Non-current liabilities

Lease liabilities - 44,374 44,374

Other payables 1,011 - 1,011

Provisions 124,467 - 124,467

Non-current liabilities without financial effect 7,618,867 - 7,618,867

Total non-current liabilities 7,744,345 44,374 7,788,719

Total liabilities 18,502,583 69,312 18,571,895

Equity

Retained earnings 5,460,710 (2,020) 5,458,690

Equity without financial effect 3,902,170 - 3,902,170

Total equity 9,362,880 (2,020) 9,360,860


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In applying Korean IFRS 1116 for the first time, the Company has used the following practical expedients permitted by the standard:

Ÿ the use of a single discount rate to a portfolio of leases with reasonably similar characteristics

Ÿ reliance on previous assessments on whether leases are onerous

Ÿ the accounting for operating leases with a remaining lease term of less than 12 months as at January 1, 2019, as short-term leases

Ÿ the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application, and

Ÿ the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease

The Company has also elected not to reassess whether a contract is, or contains a lease at the date of initial application. Instead, for contracts entered into before the date of initial application, the Company relied on its assessment made applying Korean IFRS 1017 and Interpretation 2104 Determining whether an Arrangement contains a Lease.

Lessor accounting

There is no significant impact on the separate interim financial statements from applying the new standard as accounting for the Company, as a lessor, does not significantly change.

- Amendments to Korean IFRS 1109 Financial Instruments

The narrow-scope amendments made to Korean IFRS 1109 Financial Instruments enable entities to measure certain prepayable financial assets with negative compensation at amortized cost. When a modification of a financial liability measured at amortized cost that does not result in the derecognition, a modification gain or loss shall be recognized in profit or loss. The amendment does not have a significant impact on the separate interim financial statements.

- Amendments to Korean IFRS 1019 Employee Benefits

The amendments require that an entity shall calculate current service cost and net interest for the remainder of the reporting period after a plan amendment, curtailment or settlement based on updated actuarial assumptions from the date of the change. The amendments also require that a reduction in a surplus must be recognized in profit or loss even if that surplus was not previously recognized because of the impact of the asset ceiling. The amendments are effective for plan amendments, curtailments and settlements occurring in reporting periods that begin on or after January 1, 2019. The amendment does not have a significant impact on the separate interim financial statements.


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- Amendments to Korean IFRS 1028 Investments in Associates and Joint Ventures

The amendments clarify that an entity shall apply Korean IFRS 1109 to financial instruments in an associate or joint venture to which the equity method is not applied. These include long-term interests that, in substance, form part of the entity’s net investment in an associate or joint venture. The amendment does not have a significant impact on the separate interim financial statements.

- Enactment to Interpretation of Korean IFRS 2123 Uncertainty over Income Tax Treatments

The Interpretation explains how to recognize and measure deferred and current income tax assets and liabilities where there is uncertainty over a tax treatment, and includes guidance on how to determine whether each uncertain tax treatment is considered separately or together. It also presents examples of circumstances where a judgement or estimate is required to be reassessed. The enactment does not have a significant impact on the separate interim financial statements.

(b) There are no new, enacted and amended standards issued, but not effective for September 30, 2019, and not early adopted by the Company.

Application of Accounting Policies

Significant accounting policies and method of computation used in the preparation of the condensed separate interim financial statements are consistent with those of the separate interim financial statements for the year ended December 31, 2018, except for the changes due to the application of amendment and enactments of standards described in Note 2 and the ones described below.

Income Tax Expense

Income tax expense for the interim period is recognized based on management’s best estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual tax rate is applied to the pre-tax income for the period.

Leases

The Company has applied Korean IFRS 1116 Leases from January 1, 2019.

The Company leases various offices, warehouses, retail stores, equipment and cars. A lease term is normally determined considering non-cancellable period of a lease and its extension options. Lease conditions are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants, but leased assets may not be used as security for borrowing purposes.

Lessee accounting

Until the 2018 financial year, leases of property, plant and equipment were classified as either finance or operating leases. Payments made under operating leases (net of any incentives received from the lessor) were charged to profit or loss on a straight-line basis over the period of the lease.


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From January 1, 2019, leases are recognized as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Company. Each lease payment is allocated to the repayment of lease liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the lease liability for each period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.

(a) Right-of-use assets

Right-of-use assets are measured at cost comprising the following:

Ÿ the amount of the initial measurement of lease liability

Ÿ any lease payments made at or before the commencement date less any lease incentives received

Ÿ any initial direct costs, and

Ÿ estimated restoration costs

(b) Lease liabilities

The lease liabilities are initially measured at the present value of the lease payments that are not paid at the commencement date. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee’s incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions.

At the commencement date, the lease payments included in the measurement of the lease liability comprise the following payments:

Ÿ fixed lease payments (including in-substance fixed payments), less any lease incentives receivable

Ÿ variable lease payments that are based on an index or a rate

Ÿ amounts expected to be payable by the lessee under residual value guarantees

Ÿ the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and

Ÿ payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option

However, payments associated with short-term leases and leases of low-value assets are recognized on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT-equipment whose underlying assets are values below US$ 5,000, and others.


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Lessor accounting

There is no significant impact on the separate interim financial statements from applying the new standard as the current lease accounting treatment for the Company, as a lessor, does not significantly change.

A lessor classifies each of its leases as either an operating lease or a finance lease. A lease that transfers substantially all the risks and rewards incidental to ownership of underlying asset is classified as a finance lease, and a lease other than a finance lease is classified as an operating lease.

At the commencement date, a lessor recognizes assets held under a finance lease in its statement of financial position and presents them as a receivable at an amount equal to the net investment in the lease using the interest rate implicit in the lease. Under an operating lease, a lessor recognizes lease payments from operating leases as income on either a straight-line basis or other systematic base.

3. Critical Accounting Estimates and Judgements

The estimates and judgments are continuously evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable.

The Company makes estimates and assumptions concerning the future. Estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing adjustments to the carrying amounts of assets and liabilities after the end of the reporting period are addressed below.

(a) Revenue recognition

The Company recognizes revenue over time using the percentage of completion method for the rendering of service such as equipment production and installation. The Company measures the percentage of completion by estimating cost for the completion of the transaction, and the factors for the estimation of revenue may vary.

(b) Impairment of goodwill

The Company tests goodwill regularly for impairment. The recoverable amounts of cash-generating units have been determined based on fair value less costs of disposal or value-in-use calculations. These calculations require the use of estimates.


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(c) Income taxes

The Company recognizes assets and liabilities for anticipated tax audit issues based on the best estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made.

(d) Fair value of financial instruments

The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The Company uses its judgement to select a variety of methods and makes assumptions that are mainly based on market conditions existing at the end of the reporting period.

(e) Provisions

The Company recognizes provisions for product warranties and others based on their historical data at the end of the reporting period.

(f) Net defined benefit liabilities

The present value of the defined benefit liability depends on various factors that are determined on an actuarial basis. The assumptions used in determining the net cost (income) for pensions include the discount rate, which is the interest rate that is used to determine the present value of estimated future cash outflows expected to be required to settle the defined benefit liability. In determining the appropriate discount rate, the Company considers the interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability. Other key assumptions for defined benefit liability are based on current market conditions.

(g) Development costs

The Company capitalizes development costs when there is a reasonable assurance that projects have technical feasibility and the possibility of generating future economic benefits, and performs periodic impairment test. The recoverable amount of each project has been calculated on a basis of the value-in-use reflecting historical experience and future business plans. These calculations require estimates.


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4. Financial Instruments by Category

(a) Categorizations of financial instruments as at September 30, 2019 and December 31, 2018, are as follows:

September 30, 2019

(in millions of Korean won)

Financial assets at amortized

cost

Financial assets at fair value through other

comprehensive income

Financial assets at fair value through

profit or loss Other Total Cash and cash equivalents 1,075,484 - - - 1,075,484 Deposits held by financial institutions 82,083 - - - 82,083

Trade receivables 4,468,452 19,318 - - 4,487,770 Other receivables 740,611 - - - 740,611 Other financial assets - 34,787 14,850 10,335 59,972 Total 6,366,630 54,105 14,850 10,335 6,445,920

September 30, 2019


Financial liabilities at amortized cost

Financial liabilities at fair value through

profit or loss Other Total Trade payables 5,777,259 - - 5,777,259 Borrowings 8,262,437 - - 8,262,437 Lease liabilities - - 101,860 101,860 Other payables 1,617,278 - - 1,617,278 Other financial liabilities - 1,542 103,243 104,785 Total 15,656,974 1,542 205,103 15,863,619

December 31, 2018



cost




profit or loss Other Total Cash and cash equivalents 1,109,883 - - - 1,109,883 Deposits held by financial institutions 81,711 - - - 81,711

Trade receivables 3,678,401 47,611 - - 3,726,012 Other receivables 788,916 - - - 788,916 Other financial assets - 30,025 12,685 1,572 44,282 Total 5,658,911 77,636 12,685 1,572 5,750,804

December 31, 2018




profit or loss Other Total Trade payables 5,553,794 - - 5,553,794 Borrowings 7,900,512 - - 7,900,512 Other payables 2,372,064 - - 2,372,064 Other financial liabilities - 1,862 88,350 90,212 Total 15,826,370 1,862 88,350 15,916,582


19

(b) Net gains or losses on each category of financial instruments for the nine-month periods ended September 30, 2019 and 2018, are as follows:

2019



cost




profit or loss Other Total Interest income 14,253 - - - 14,253 Exchange differences 276,879 - - - 276,879 Bad debt expense (36,387) - - - (36,387) Loss on disposal of trade receivables

(1,675) (2,106) - - (3,781)

Dividend income - 242 272 - 514 Gain on valuation of financial assets at fair value through profit or loss

- - 17 - 17

Fair value loss, net of tax (through other comprehensive income)

- (131) - - (131)

Loss on derivatives, net of tax (through other comprehensive income)

- - - (1,970) (1,970)

Others (10,481) - - - (10,481)

2019




profit or loss Other Total Interest expenses (184,003) - (3,065) (187,068) Exchange differences (351,551) - 42,999 (308,552) Gain on derivatives

(through profit or loss)

- 320 - 320

Loss on derivatives, net of tax (through other comprehensive income)

- - (32,342) (32,342)

Others - - (7,658) (7,658)


20

2018



cost




profit or loss Other Total Interest income 21,413 - - - 21,413 Exchange differences 183,835 - - - 183,835 Bad debt expense (12,069) - - - (12,069) Loss on disposal of trade receivables

(1,508) (1,905) - - (3,413)

Dividend income - 192 - - 192 Loss on valuation of financial assets at fair value through profit or loss

- - (2,002) - (2,002)

Fair value gain, net of tax (through other comprehensive income)

- 1,569 - - 1,569

Gain on derivatives, net of tax (through other comprehensive income)

- - - 104 104

Others (6,493) - - - (6,493)

2018




profit or loss Other Total Interest expenses (170,578) - (8,157) (178,735) Exchange differences (204,682) - 29,682 (175,000) Gain on derivatives (through profit or loss)

- 264 - 264

Loss on derivatives, net of tax (through other comprehensive loss)

- - (11,713) (11,713)

Others - - 638 638

5. Trade Receivables and Other Receivables

(a) Trade receivables and other receivables, net of allowance for doubtful accounts, as at September 30, 2019 and December 31, 2018, are as follows:

September 30, 2019 December 31, 2018


Original amount

Allowance for doubtful

accounts Carrying amount

Original amount

Allowance for doubtful

accounts Carrying amount

Trade receivables 4,550,950 (63,180) 4,487,770 3,756,499 (30,487) 3,726,012 Other receivables

Current 560,893 (7,032) 553,861 551,698 (6,267) 545,431 Non-current 189,693 (2,943) 186,750 243,494 (9) 243,485


21

(b) Movements in allowance for doubtful accounts for the nine-month periods ended September 30, 2019 and 2018, are as follows:

2019

(in millions of Korean won) At Jan. 1 Addition

Write-off and other At Sept. 30

Trade receivables 30,487 32,688 5 63,180 Other receivables

Current 6,267 765 - 7,032 Non-current 9 2,934 - 2,943

2018

(in millions of Korean won) At Jan. 1

Addition (Reversal)

Write-off and other At Sept. 30

Trade receivables 22,716 12,870 11 35,597 Other receivables

Current 6,694 (300) - 6,394 Non-current 511 (501) - 10

(c) The aging analysis of trade receivables and other receivables as at September 30, 2019 and

December 31, 2018, is as follows:

September 30, 2019 December 31, 2018 Trade

receivables Other receivables Trade

receivables Other receivables

(in millions of Korean won) Current Non-current Total Current Non-current Total Receivables not past due 4,213,719 413,224 175,621 4,802,564 3,446,476 417,134 230,670 4,094,280 Past due but not impaired

Up to 6 months 174,029 46,898 8,582 229,509 210,170 13,555 11,711 235,436 7 to 12 months 38,440 11,493 2,708 52,641 77,215 23,499 610 101,324 Over 1 year 25,084 81,416 2 106,502 11,527 90,332 503 102,362

Subtotal 237,553 139,807 11,292 388,652 298,912 127,386 12,824 439,122 Impaired 99,678 7,862 2,780 110,320 11,111 7,178 - 18,289 Total 4,550,950 560,893 189,693 5,301,536 3,756,499 551,698 243,494 4,551,691

(d) There are no financial assets transferred but not derecognized in their entirety, nor any associated liabilities recognized at the end of the reporting period.


22

6. Other Financial Assets and Liabilities

(a) Details of other financial assets and liabilities as at September 30, 2019 and December 31, 2018, are as follows:

(in millions of Korean won) September 30, 2019 December 31, 2018 Other financial assets Derivatives 10,335 1,572 Financial assets at fair value through other comprehensive income

34,787 30,025

Financial assets at fair value through profit or loss

14,850 12,685

Total 59,972 44,282

Current - 1,281 Non-current 59,972 43,001

(in millions of Korean won) September 30, 2019 December 31, 2018 Other financial liabilities Derivatives 88,094 75,860 Financial guarantee liability 16,691 14,352

Total 104,785 90,212

Current 8,217 6,453 Non-current 96,568 83,759

(b) Details of derivatives as at September 30, 2019 and December 31, 2018, are as follows:


September 30, 2019 December 31, 2018 Assets Liabilities Assets Liabilities

Current Cross-currency swap - - 1,281 - Share purchase contract - 1,542 - -

Subtotal - 1,542 1,281 - Non-current

Cross-currency swap 10,335 4,268 291 20,920 Interest rate swap - 82,284 - 53,078 Share purchase contract - - - 1,862

Subtotal 10,335 86,552 291 75,860 Total 10,335 88,094 1,572 75,860

The details of major derivative contracts at the end of the reporting period are presented in Note 31.


23

(c) Changes in carrying amount of financial assets at fair value through other comprehensive income for the nine-month periods ended September 30, 2019 and 2018, are as follows:

2019 (in millions of Korean won) At Jan. 1 Acquisition Disposals Valuation At Sept. 30 Listed equity securities 13,265 - (769) (3,157) 9,339 Unlisted equity securities 16,760 8,688 (2,978) 2,978 25,448 Total 30,025 8,688 (3,747) (179) 34,787

2018 (in millions of Korean won) At Jan. 1 Acquisition Disposals Valuation At Sept. 30 Listed equity securities 13,842 - - 3,437 17,279 Unlisted equity securities 7,842 5,561 - (1,698) 11,705 Total 21,684 5,561 - 1,739 28,984

(d) Changes in carrying amount of financial assets at fair value through profit or loss for the nine-month periods ended September 30, 2019 and 2018, are as follows:

2019 (in millions of Korean won) At Jan. 1 Acquisition Disposals Valuation At Sept. 30 Unlisted equity securities 12,685 3,420 (1,272) 17 14,850

2018 (in millions of Korean won) At Jan. 1 Acquisition Disposals Valuation At Sept. 30 Unlisted equity securities 10,399 2,567 - (2,002) 10,964

7. Inventories

Inventories as at September 30, 2019 and December 31, 2018, consist of:


(in millions of Korean won) Cost Valuation allowance

Carrying amount Cost

Valuation allowance

Carrying amount

Finished products and merchandise

569,289 (43,810) 525,479 664,581 (38,222) 626,359

Work-in-process 121,588 (1,233) 120,355 132,285 (3,346) 128,939 Raw materials and supplies 670,913 (68,779) 602,134 674,854 (43,914) 630,940 Other 138,274 (22,747) 115,527 141,705 (22,558) 119,147 Total 1,500,064 (136,569) 1,363,495 1,613,425 (108,040) 1,505,385

8. Contract Assets and Contract Liabilities

(a) Contract assets as at September 30, 2019 and December 31, 2018, are as follows:


24

(in millions of Korean won) September 30, 2019 December 31, 2018 Due from customers 472,244 454,920

(Less: allowance for doubtful accounts) (2,999) (2,400)

Right to recover returned products 836 799

Costs to fulfil contracts and others 150,011 102,080

Total 620,092 555,399

Current 507,971 465,307

Non-current 112,121 90,092

(b) Contract liabilities as at September 30, 2019 and December 31, 2018, are as follows:

(in millions of Korean won) September 30, 2019 December 31, 2018 Expected promotional incentives for customers 158,218 140,200

Expected returns from customers 1,350 1,221

Customer loyalty program 66,106 51,015

Rendering of warranty services 14 55

Due to customers and others 179,733 267,082

Total 405,421 459,573

Current 404,611 458,539

Non-current 810 1,034

(c) Revenue recognized in relation to contract liabilities for the nine-month periods ended September 30, 2019 and 2018, is as follows:

(in millions of Korean won) 2019 2018 Revenue recognized that was included in the contract liability amount at the beginning of the period:

Due to customers and others 219,023 229,961

Customer loyalty program 38,790 2,896

Rendering of warranty services 41 37

Total 257,854 232,894 Revenue recognized from performance obligations satisfied in previous periods

2,130 794

(d) Unsatisfied long-term contracts

At the end of the reporting period, the total amount of transaction price allocated to the unsatisfied or partially unsatisfied performance obligations is \744,187 million where they are expected to be satisfied by 2021, at the latest. Also as a practical expedient, the Company excluded performance obligation which is part of a contract that has an original expected duration of one year or less.


25

(e) For the nine-month period ended September 30, 2019, the Company recognized impairment loss amounting to \70 million (September 30, 2018: reversal of impairment loss of \1 million) upon due from customers and a depreciation of \44,302 million (September 30, 2018: \2,157 million) upon costs to fulfil a contract.

9. Property, Plant and Equipment, and Intangible Assets

(a) Changes in property, plant and equipment for the nine-month periods ended September 30, 2019 and 2018, are as follows:

(in millions of Korean won) 2019 2018 At January 11 7,349,993 7,142,306 Acquisitions 572,947 551,420 Reclassification to assets held for sale (2,920) (3,629) Disposals and others (40,388) (33,589) Decrease due to transfer of business - (9) Depreciation (543,572) (494,688) Impairment (75,943) (1,200)

At September 30 7,260,117 7,160,611

1 Property, plant and equipment as at January 1, 2019, amounting to \71,755 million, was newly recognized upon adoption of Korean IFRS 1116 Leases.

(b) Line items including depreciation in the separate interim statements of profit or loss for the nine-month periods ended September 30, 2019 and 2018, are as follows:

(in millions of Korean won) 2019 2018 Cost of sales 437,098 418,129 Selling and marketing expenses 22,747 7,629 Administrative expenses 20,770 11,385 Research and development expenses 50,310 48,771 Service costs 8,780 4,056 Other non-operating expenses 3,867 4,718 Total 543,572 494,688


26

(c) Changes of right-of-use assets included in property, plant and equipment for the nine-month period ended September 30, 2019, are as follows:

(in millions of Korean won) 2019 At January 1 80,736 Acquisitions

63,248

Disposals and others (7,129) Depreciation (29,248)

At September 30

107,607

The amount recognized as lease income in relation to sublease of the above right-of-use assets for the nine-month period ended September 30, 2019, was \8,440 million.

(d) Changes in intangible assets for the nine-month periods ended September 30, 2019 and 2018, are as follows:

(in millions of Korean won) 2019 2018 At January 1 1,671,617 1,474,201 Acquisitions 112,908 122,505 Acquisitions through internal development 208,530 321,002 Reclassified to assets held for sale - (183) Disposals and others (23,214) (34,186) Amortization (239,822) (252,019) Impairment (228,677) (23,606)

At September 30 1,501,342 1,607,714

(e) Line items including amortization of intangible assets for the nine-month periods ended September 30, 2019 and 2018, are as follows:

(in millions of Korean won) 2019 2018 Cost of sales 142,308 143,145 Selling and marketing expenses 10,345 11,671 Administrative expenses 37,121 45,441 Research and development expenses 49,499 51,154 Service costs 543 608 Other non-operating expenses 6 -

Total 239,822 252,019


27

10. Investments in Subsidiaries, Associates and Joint Ventures

(a) Investments in subsidiaries, associates and joint ventures as at September 30, 2019 and December 31, 2018, are as follows:


Location Closing month

Percentage of ownership (%)

Carrying amount September 30,

2019 December 31,

2018 Subsidiaries

LG Electronics U.S.A., Inc.(LGEUS) USA December 100.0 955,542 955,542 ZKW Holding GmbH Austria December 70.0 943,468 943,468

LG Innotek Co., Ltd. Korea December 40.8 541,538 541,538

LG Electronics India Pvt. Ltd.(LGEIL) India March 100.0 311,746 311,746

LG Electronics do Brasil Ltda.(LGEBR) Brazil December 100.0 270,631 270,631

LG Electronics Mlawa Sp. z.O.O.(LGEMA) Poland December 100.0 214,091 214,091 LG Electronics Tianjin Appliances Co., Ltd.(LGETA)

China December 70.0 161,331 161,331

LG Electronics European Holding B.V.(LGEEH)

Netherlands December 100.0 148,551 148,551

Hiplaza Co., Ltd. Korea December 100.0 136,459 136,459

LG Electronics Egypt S.A.E(LGEEG) Egypt December 100.0 110,245 110,245 Taizhou LG Electronics Refrigeration Co., Ltd.(LGETR)

China December 88.4 97,608 97,608

P.T. LG Electronics Indonesia(LGEIN) Indonesia December 100.0 94,118 94,118 LG Electronics Vietnam Haiphong Co., Ltd.(LGEVH)

Vietnam December 100.0 84,784 84,784

LG Electronics Panama, S.A.(LGEPS) Panama December 100.0 79,222 79,222 LG Electronics Wroclaw Sp. z.O.O.(LGEWR)

Poland December 100.0 70,014 70,014

LG Electronics Mexico S.A. DE C.V.(LGEMS)

Mexico December 100.0 68,721 68,721

LG Electronics Shenyang Inc.(LGESY) China December 56.3 62,033 62,033

LG Electronics Thailand Co., Ltd.(LGETH) Thailand December 100.0 55,578 55,578

LG Electronics Australia Pty, Ltd.(LGEAP) Australia December 100.0 50,664 50,664

Inspur LG Digital Mobile Communications Co., Ltd.(LGEYT)

China December 60.0 48,624 48,624

LG Electronics Ticaret A.S.(LGETK) Turkey December 100.0 47,320 47,320

LG Electronics RUS, LLC(LGERA) Russia December 100.0 43,645 43,645

LG Electronics Huizhou Ltd.(LGEHZ) China December 45.0 41,984 41,984 LG Electronics Nanjing New Technology Co.,Ltd(LGENT)

China December 45.0 38,744 38,744

ZKW Austria Immobilien Holding GmbH1 Austria December 70.0 35,640 35,640

LG Electronics S.A. (Pty) Ltd.(LGESA) Republic of South Africa

December 100.0 32,112 32,112

NanJing LG-Panda Appliances Co., Ltd.(LGEPN)

China December 50.0 26,614 26,614

LG Electronics Colombia Limitada(LGECB) Colombia December 60.7 25,215 25,215

LG Electronics Peru S.A.(LGEPR) Peru December 100.0 25,043 25,043 LG Electronics Overseas Trading FZE(LGEOT)

United Arab Emirates

December 100.0 22,538 22,538


28


Location Closing month

Percentage of ownership (%)

Carrying amount September 30,

2019 December 31,

2018 Qingdao LG Inspur Digital Communication Co., Ltd.(LGEQD)

China December 60.0 22,142 22,142

LG Electronics Air-Conditioning(Shandong) Co., Ltd.(LGEQA)

China December 100.0 20,615 20,615

LG Soft India Private Limited.(LGSI) India March 100.0 20,105 20,105

LG Electronics Fund I LLC2 USA December 100.0 13,427 6,943

Hi Entech Co., Ltd .3 Korea December 100.0 - 63,118

LG Hitachi Water Solution Co., Ltd .3 Korea December 51.0 - 9,180 LG Electronics Nanjing Battery Pack

Co.,Ltd.(LGENB) 4 China December 50.0 - 6,636

LGE Alliance Fund5 Korea December 96.2 - 6,200 LGE Alliance Fund Ⅱ5 Korea December 98.7 - 1,314

Others 216,237 216,237

Associates

LG Display Co., Ltd. Korea December 37.9 3,480,623 3,480,623

Hitachi-LG Data Storage Inc.(HLDS) Japan December 49.0 131,378 131,378

Robostar Co.,Ltd. Korea December 30.0 82,045 82,045

Ericsson-LG Co., Ltd. Korea December 25.0 38,834 38,834

Kiwigrid GmbH6 Germany December 16.3 13,019 13,019

ROBOTIS Co., Ltd.6 Korea December 8.5 9,000 9,000 Korea Information Certificate Authority Inc.6

Korea December 6.5 2,088 2,088

Acryl Inc.2,6 Korea December 14.5 2,000 1,000 LG Fuel Cell Systems Inc.7 USA December 33.5 - -

Joint ventures

LG Holdings (HK) Ltd.8 China December 49.0 53,277 84,989 Arcelik-LG Klima Sanayi ve Ticaret

A.S.(LGEAT) Turkey December 50.0 40,844 40,844

EIC PROPERTIES PTE LTD. Singapore December 38.2 7,881 7,881

LG-LHT Aircraft Solutions GmbH2 Germany December 49.0 5,085 -

LG-LHT Passenger Solutions GmbH2 Germany December 49.0 4,553 -GUANGDONG SMART LIFE

TECHNOLOGY CO., LTD2 China December 35.0 300 -

Total 9,007,276 9,108,014

1 Mommert Gewerbeimmobilien Verwaltungs GmbH changed its name to ZKW Austria Immobilien Holding GmbH during the nine-month period ended September 30, 2019.

2 It was additionally acquired during the nine-month period ended September 30, 2019. 3 It was disposed during the nine-month period ended September 30, 2019. 4 It was impaired during the nine-month period ended September 30, 2019. 5 It was liquidated during the nine-month period ended September 30, 2019. 6 Classified as an associate although the percentage of ownership is less than 20% because the Company

can exercise a significant influence in the Board of Directors of the investee. 7 It was impaired in 2018. 8 Conducted capital reduction with consideration during the nine-month period ended September 30, 2019.


29

(b) Changes in investments in subsidiaries, associates and joint ventures for the nine-month periods ended September 30, 2019 and 2018, are as follows:

(in millions of Korean won) 2019 2018 At January 1 9,108,014 8,066,087 Acquisitions 17,422 1,069,797 Disposal and others (111,524) (1,536)Impairment loss (6,636) -

At September 30 9,007,276 9,134,348

(c) Details of marketable investments in subsidiaries and associates as at September 30, 2019 and December 31, 2018, are as follows:

September 30, 2019

Shares held

Price per share

Fair value Book amount

Type (Unit: shares) (Unit: won) (in millions of Korean won) LG Display Co., Ltd. Associate 135,625,000 14,150 1,919,094 3,480,623 LG Innotek Co., Ltd. Subsidiary 9,653,181 114,000 1,100,463 541,538 Robostar Co.,Ltd. Associate 2,927,735 19,050 55,773 82,045 ROBOTIS Co., Ltd. Associate 961,550 11,350 10,914 9,000 Korea Information Certificate Authority Inc.

Associate 2,010,247 3,550 7,136 2,088

December 31, 2018

Shares held

Price per share

Fair value Book amount

Type (Unit: shares) (Unit: won) (in millions of Korean won) LG Display Co., Ltd. Associate 135,625,000 18,050 2,448,031 3,480,623 LG Innotek Co., Ltd. Subsidiary 9,653,181 86,400 834,035 541,538 Robostar Co.,Ltd. Associate 2,927,735 24,000 70,266 82,045 ROBOTIS Co., Ltd. Associate 961,550 17,200 16,539 9,000 Korea Information Certificate Authority Inc.

Associate 2,010,247 3,775 7,589 2,088


30

11. Borrowings

(a) The carrying amounts of borrowings as at September 30, 2019 and December 31, 2018, are as follows:

(in millions of Korean won) September 30, 2019 December 31, 2018 Current Short-term borrowings 236,635 - Current portion of long-term borrowings 141,394 25,000 Current portion of debentures 479,810 743,275

Subtotal 857,839 768,275 Non-current

Long-term borrowings 2,748,259 2,596,536 Debentures 4,656,339 4,535,701

Subtotal 7,404,598 7,132,237 Total 8,262,437 7,900,512

(b) Details of borrowings as at September 30, 2019 and December 31, 2018, are as follows:

(in millions of Korean won) Latest

maturity date

Annual interest rate at

September 30, 2019 (%)

Carrying amount


Short-term borrowings in foreign currency

LG Electronics European Shared Service Center B.V. (LGESC) 2020. 1.15 0.79 236,635 -

Long-term borrowings in local currency

Korea Development Bank and others

2030. 8. 1 2.21 ~ 3.50 2,255,000 2,270,000

Long-term borrowings in foreign currency

KEB Hana Bank and others 2030. 8. 1 0.79 ~ 3.70 634,653 351,536 Local currency debentures

Public, non-guaranteed bonds 2034. 2.21 1.48 ~ 4.44 3,700,000 3,720,000

Private, non-guaranteed bonds 2038. 4. 3 2.79 ~ 4.21 920,000 850,000 Foreign currency debentures

Private, non-guaranteed bonds 2028. 6. 8 2.81 ~ 3.71 396,430 368,973

Private, guaranteed bonds 2023. 2.24 0.31 131,464 351,536

Less: discount on debentures (11,745) (11,533)

Total 8,262,437 7,900,512

The Company entered into an interest rate swap and cross-currency swap contracts to hedge cash flow risk related to floating interest rate and foreign exchange rate of some portion of borrowings (Note 31).


31

12. Lease Liabilities

(a) Details of lease liabilities as at September 30, 2019 and January 1, 2019, are as follows:

(in millions of Korean won) September 30, 2019 January 1, 2019 Lease liabilities Current 40,509 29,733 Non-current 61,351 44,374

Total 101,860 74,107

(b) The statement of profit or loss shows the following amounts relating to leases:

(in millions of Korean won) 2019 Interest expense on lease liabilities 2,066 Short-term lease payments (included in cost of sales, selling and marketing expenses, administrative expenses, and others)

54,322

Payments for leases of low-value assets that are not short-term leases (included in cost of sales, selling and marketing expenses, administrative expenses, and others)

12,522

Total expenses for leases including short-term leases and leases of low-value assets are \93,140 million.

13. Post-employment Benefits

Defined Benefit Plan

(a) The amounts of net defined benefit liabilities as at September 30, 2019 and December 31, 2018, are as follows:

(in millions of Korean won) September 30, 2019 December 31, 2018 Present value of funded obligations 2,951,834 2,610,800 Fair value of plan assets (2,227,600) (2,304,879) Net defined benefit liabilities 724,234 305,921

(b) The amounts recognized in the separate interim statements of profit or loss for the nine-month periods ended September 30, 2019 and 2018, are as follows:

(in millions of Korean won) 2019 2018 Current service cost 223,937 195,644 Past service cost (11,847) (3,689) Net interest cost 7,140 5,015 Operating management cost 1,630 1,565

Total 220,860 198,535


32

(c) Line items in which expenses are included for the nine-month periods ended September 30, 2019 and 2018, are as follows:

(in millions of Korean won) 2019 2018 Cost of sales 108,059 104,859 Selling and marketing expenses 27,210 25,071 Administrative expenses 14,795 13,830 Research and development expenses 58,851 52,332 Service costs 11,945 2,443

Total 220,860 198,535

(d) Movements in the present value of defined benefit obligations for the nine-month periods ended September 30, 2019 and 2018, are as follows:

(in millions of Korean won) 2019 2018 At January 1 2,610,800 2,378,703

Current service cost 223,937 195,644 Past service cost (11,847) (3,689) Interest expense 48,160 52,587 Remeasurements for:

- Actuarial loss arising from changes in demographic assumptions

95,591 -

- Actuarial loss arising from changes in financial assumptions

131,585 42,028

Benefits paid (124,342) (114,382) Reduction due to settlement of plan (22,050) (38,066) Reclassification to liabilities held for sale - (1,330)

At September 30 2,951,834 2,511,495

(e) Movements in the fair value of plan assets for the nine-month periods ended September 30, 2019 and 2018, are as follows:

(in millions of Korean won) 2019 2018 At January 1 2,304,879 2,158,093

Interest income 41,020 47,572 Remeasurements of plan assets (5,152) (18,557) Benefits paid (90,070) (90,807) Reduction due to settlement of plan (21,447) (35,147) Operating management cost (1,630) (1,565) Reclassification to liabilities held for sale - (1,180)

At September 30 2,227,600 2,058,409


33

(f) The significant actuarial assumptions used as at September 30, 2019 and December 31, 2018, are as follows:

September 30, 2019 December 31, 2018 Discount rate 2.1% 2.6%Expected salary growth rate 5.0% 5.0%

(g) The sensitivity analysis of the defined benefit obligation to changes in principal assumptions as at September 30, 2019, is as follows:

(in millions of Korean won) 1%p increase 1%p decrease Discount rate (252,155) 291,223 Expected salary growth rate 282,091 (249,695)

The above sensitivity analysis is based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. The sensitivity of the defined benefit obligation to changes in principal actuarial assumptions is calculated using the projected unit credit method, the same method applied when calculating the defined benefit obligations.

Defined Contribution Plan

The expense recognized in the nine-month period ended September 30, 2019 in relation to the defined contribution plan was \10,395 million (September 30, 2018: \6,809 million).


34

14. Provisions

(a) Changes in provisions for the nine-month periods ended September 30, 2019 and 2018, are as follows:

2019

(in millions of Korean won) Warranty Restoration Litigation

and others Total At January 11 379,493 10,626 68,834 458,953

Additional provisions, net2 389,206 438 7,864 397,508

Utilizations (261,824) (887) (15,623) (278,334) At September 30 506,875 10,177 61,075 578,127

Current 481,420 6,615 - 488,035 Non-current 25,455 3,562 61,075 90,092

2018

(in millions of Korean won) Warranty Restoration Litigation

and others Total At January 1 325,984 12,517 69,127 407,628

Additional provisions, net2 263,865 409 26,762 291,036

Utilizations (240,532) (2,229) (13,203) (255,964) At September 30 349,317 10,697 82,686 442,700

Current 322,297 80 - 322,377 Non-current 27,020 10,617 82,686 120,323

1 Provision for “litigation and others” related to income tax as at January 1, 2019, amounting to \14,515 million, was reclassified to current income tax liabilities. 2 Net amount of additional provisions equals to additional provisions less reversed amounts.


35

15. Paid-in Capital

(a) At the end of the reporting period, the number of shares authorized is 600 million.

Par value per share


Number of

shares issued

Amount (in millions of Korean won)

Number of shares issued

Amount (in millions of Korean won)

Ordinary shares 5,000 163,647,814 818,239 163,647,814 818,239 Preferred shares 5,000 17,185,992 85,930

17,185,992 85,930 Total 180,833,806 904,169 180,833,806 904,169

The preferred shareholders have no voting rights and are entitled to preferred dividends at a rate of one percentage point over that of ordinary shares. This preferred dividend rate is not applicable to stock dividends. In addition, the preferred shareholders have same rights on the remaining assets as ordinary shareholders. Repayment and conversion are not applicable to preferred shares.

(b) Share premium balance as at September 30, 2019, is ￦3,088,179 million. The share premium of ￦1,876,153 million was recognized, which is ￦2,815,707 million of the carrying amount of net assets acquired from the entity split-off back on April 1, 2002, less the Company’s capital of ￦783,961 million and less the Company’s capital adjustment of ￦155,593 million. In addition, the amount of ￦331,766 million paid in excess of par value due to issuance of ordinary shares (merged with LG IBMPC Co., Ltd.) and the exercise of conversion right and warrants in 2005 and 2006 are included. The excess in paid-in capital amounting to ￦880,260 million over the par value was recognized as the share premium due to the issuance of ordinary shares in 2011.

16. Retained Earnings

(a) Retained earnings as at September 30, 2019 and December 31, 2018, consist of:

(in millions of Korean won) September 30, 2019 December 31, 2018 Legal reserve1 195,936 182,342 Discretionary reserve 5,128,767 5,347,641 Unappropriated retained earnings (undisposed accumulated deficit)2 84,688 (69,273)

Total 5,409,391 5,460,710

1 The Commercial Code of the Republic of Korea requires the Company to appropriate, as a legal reserve, an amount equal to a minimum of 10% of cash dividends paid until such reserve equals 50% of its issued share capital. The reserve is not available for the payment of cash dividends, but may be transferred to share capital or used to reduce accumulated deficit.

2 Dividend for the year ended December 31, 2018 of ￦135,909 million was approved at the annual general meeting held on March 15, 2019 and paid in April 2019 (2018 payments: ￦72,885 million).


36

17. Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss as at September 30, 2019 and December 31, 2018, consists of:

(in millions of Korean won) September 30, 2019 December 31, 2018 Cash flow hedge (91,458) (57,146) Financial assets at fair value through other comprehensive income

(344) (213)

Total (91,802) (57,359)

18. Other Components of Equity

Other components of equity as at September 30, 2019 and December 31, 2018, consist of:

(in millions of Korean won) September 30, 2019 December 31, 2018 Treasury shares1 (44,893) (44,893) Consideration for conversion rights 9,891 9,891 Gain on disposal of treasury shares 2,183 2,183 Total (32,819) (32,819)

1 The Company has treasury shares consisting of 763,172 ordinary shares (December 31, 2018: 763,172 shares) and 4,692 preferred shares (December 31, 2018: 4,692 shares) at the end of the reporting period. The Company intends to either grant these treasury shares to employees and directors as compensation or to sell them in the future.

19. Net Sales

(a) Details of net sales for the three-month and nine-month periods ended September 30, 2019 and 2018, are as follows:

2019 2018 (in millions of Korean won) Three months Nine months Three months Nine months Revenue from contracts with customers:

Sales of goods 6,306,060 21,063,546 7,470,994 22,737,825 Rendering of services 135,091 349,097 111,816 348,320 Royalty income 141,975 363,825 65,927 199,397

Sub-total 6,583,126 21,776,468 7,648,737 23,285,542 Revenue from other sources:

Rental income and others 120,621 331,350 83,745 224,646 Total 6,703,747 22,107,818 7,732,482 23,510,188


37

(b) Details of revenue from contracts with customers for the nine-month periods ended September 30, 2019 and 2018, are as follows:

2019


H&A HE MC VS BS

Other

segments

Inter-segment

transactions

Total Revenue from contracts with customers: External sales 9,360,276 4,504,699 3,447,623 1,865,536 1,171,897 1,426,437 - 21,776,468

Internal sales 15,217 - - - - 75,763 (90,980) -

9,375,493 4,504,699 3,447,623 1,865,536 1,171,897 1,502,200 (90,980) 21,776,468

By type of products: Refrigerators/ washing machine/ air conditioners and others

7,764,202 - - - - - (6,102) 7,758,100

TV/ monitor /PC and others

- 4,069,251 - - - - - 4,069,251

Mobile communications - - 3,447,623 - - - - 3,447,623

In-vehicle infotainment - - - 1,516,945 - - - 1,516,945

Information display - - - - 491,364 - - 491,364

Others 1,611,291 435,448 - 348,591 680,533 1,502,200 (84,878) 4,493,185

Domestic / Export:

Domestic 5,440,496 1,537,624 968,689 382,642 195,042 402,323 (90,980) 8,835,836

Export 3,934,997 2,967,075 2,478,934 1,482,894 976,855 1,099,877 - 12,940,632

Timing of transfer: Transferred at a point in time

9,051,799 4,321,936 3,340,792 1,844,371 1,152,234 56,293 (32,424) 19,735,001

Transferred over time 323,694 182,763 106,831 21,165 19,663 1,445,907 (58,556) 2,041,467

2018


H&A HE MC VS BS

Other

segments

Inter-segment

transactions

Total Revenue from contracts with customers: External sales 8,426,207 5,043,207 4,601,098 1,894,101 1,102,459 2,218,470 - 23,285,542

Internal sales 27,411 - - - - 128,947 (156,358) -

8,453,618 5,043,207 4,601,098 1,894,101 1,102,459 2,347,417 (156,358) 23,285,542

By type of products: Refrigerators/ washing machine/ air conditioners and others

6,959,941 - - - - - (8,239) 6,951,702

TV/ monitor /PC and others

- 4,510,784 - - - - - 4,510,784

Mobile communications - - 4,601,098 - - - - 4,601,098

In-vehicle infotainment - - - 1,445,258 - - - 1,445,258

Information display - - - - 459,538 - - 459,538

Others 1,493,677 532,423 - 448,843 642,921 2,347,417 (148,119) 5,317,162

Domestic / Export:


38

2018


H&A HE MC VS BS

Other

segments

Inter-segment

transactions

Total Domestic 4,847,192 1,432,199 948,875 348,623 237,307 1,447,226 (156,358) 9,105,064

Export 3,606,426 3,611,008 3,652,223 1,545,478 865,152 900,191 - 14,180,478

Timing of transfer: Transferred at a point in time

8,157,479 4,885,116 4,561,929 1,875,161 1,086,223 84,086 (53,201) 20,596,793

Transferred over time 296,139 158,091 39,169 18,940 16,236 2,263,331 (103,157) 2,688,749

(c) Changes in the estimates of total contract revenue and total contract costs

Due to the factors causing the changes in the costs of other segments during the nine-month period ended September 30, 2019, the estimated total contract revenue and costs for contracts in progress have changed. Details of changes in estimated total contract revenue and costs and the impact on profit or loss for the nine-month period ended September 30, 2019 and the succeeding period are as follows:


Changes in estimated total

contract revenue

Changes in estimated total contract cost

Impact on profit or loss for the period

Impact on profit or loss for the

succeeding period

Other segments 43,512 37,515 (1,526) 7,523

20. Expenses by Nature

Expenses that are recorded by nature for the three-month and nine-month periods ended September 30, 2019 and 2018, consist of:

2019 2018 (in millions of Korean won) Three months Nine months Three months Nine months Changes in finished goods and work-in-process 59,983 46,030 181,715 (53,628)

Raw materials and merchandise used 3,827,292 12,620,615 4,429,281 14,106,272

Employee benefit expense 1,089,108 3,198,380 893,934 2,839,794 Depreciation and amortization 265,206 780,175 249,709 742,970 Advertising expense 157,306 410,341 161,973 474,310 Promotion expense 62,446 199,646 70,431 226,446 Freight expense 153,516 483,158 145,614 413,590 Commission expense 449,897 1,360,401 408,012 1,205,287 Other expenses 870,029 2,464,346 941,097 2,443,292 Total1 6,934,783 21,563,092 7,481,766 22,398,333

1 Cost of sales, selling and marketing expenses, administrative expenses, research and development expenses and service costs are included.


39

21. General Operating Expenses (Selling and Marketing Expenses, Administrative Expenses, Research and Development Expenses and Service Costs)

Details of general operating expenses for the three-month and nine-month periods ended September 30, 2019 and 2018, are as follows:

2019 2018 (in millions of Korean won) Three months Nine months Three months Nine months Salaries 443,773 1,221,958 362,405 1,049,701 Post-employment benefits 44,257 119,258 31,665 99,255 Employee benefits 75,367 215,212 58,848 178,120 Freight expense 151,300 476,050 143,695 408,231 Rental expense 15,869 49,027 26,807 86,493 Commission expense 320,758 958,532 291,246 850,394 Depreciation 35,811 103,261 26,127 72,822 Amortization 32,903 97,508 36,294 108,874 Taxes and dues 8,915 13,402 8,360 14,605 Advertising expense 157,306 410,341 161,973 474,310 Promotional expense 62,446 199,646 70,431 226,446 R&D costs 123,714 302,073 98,779 261,703 Direct service costs 157,508 311,491 101,680 260,927 Bad debts expense 1,278 32,758 3,875 12,869 Other 14,068 135,253 68,616 215,186 Total 1,645,273 4,645,770 1,490,801 4,319,936


40

22. Financial Income

Financial income for the three-month and nine-month periods ended September 30, 2019 and 2018, consists of:

2019 2018 (in millions of Korean won) Three months Nine months Three months Nine months Interest income 5,027 14,253 8,377 21,413 Exchange differences 32,097 84,420 34,516 129,697 Other 1,067 1,830 2,307 5,062 Total 38,191 100,503 45,200 156,172

23. Financial Expenses

Financial expenses for the three-month and nine-month periods ended September 30, 2019 and 2018, consist of:

2019 2018 (in millions of Korean won) Three months Nine months Three months Nine months Interest expense 62,383 187,068 63,206 178,735 Exchange differences 22,928 74,463 40,215 114,972 Loss on disposal of trade receivables 1,128 3,781 961 3,413

Other 5,635 19,969 3,927 10,917 Total 92,074 285,281 108,309 308,037

24. Other Non-operating Income

Other non-operating income for the three-month and nine-month periods ended September 30, 2019 and 2018, consists of:

2019 2018 (in millions of Korean won) Three months Nine months Three months Nine months Dividend income 92,319 208,753 - 188,532 Exchange differences 129,263 451,871 78,003 433,784 Gain on disposal of property, plant and equipment 5,797 9,168 2,596 11,359

Gain on disposal of assets held for sale - - - 1,446

Gain on valuation of financial assets at fair value through profit or loss

- 17 - -

Gain on disposal of investments in subsidiaries, associates and joint ventures

150,461 152,366 8 8

Gain on transfer of business - - 38,789 38,789 Other 1,901 7,225 942 4,910 Total 379,741 829,400 120,338 678,828


41

25. Other Non-operating Expenses

Other non-operating expenses for the three-month and nine-month periods ended September 30, 2019 and 2018, consist of:

2019 2018 (in millions of Korean won) Three months Nine months Three months Nine months Exchange differences 142,883 485,018 77,031 427,732 Loss on disposal of property, plant and equipment 4,713 13,072 5,554 13,351

Impairment loss on property, plant and equipment 75,729 75,943 31 1,200

Loss on disposal of intangible assets 7,804 22,428 8,463 23,082

Impairment loss on intangible assets 111,874 228,677 21,606 23,606

Loss on valuation of financial assets at fair value through profit or loss

- - 2,002 2,002

Loss on disposal of investments in subsidiaries, associates and joint ventures

2,530 2,530 - -

Impairment loss on investments in subsidiaries, associates and joint ventures

6,636 6,636 - -

Other 13,932 23,847 10,246 26,824 Total 366,101 858,151 124,933 517,797

26. Earnings (loss) per Share

The Company has no potential dilutive ordinary shares. Accordingly, basic earnings (loss) per share is identical to diluted earnings per share.

(a) Basic earnings (loss) per ordinary share for the three-month and nine-month periods ended September 30, 2019 and 2018, is as follows:

2019 2018 Three months Nine months Three months Nine months Profit (loss) attributable to ordinary

shares (in millions of Korean won) (182,919) 230,991 153,442 766,251

Weighted average number of ordinary shares outstanding (unit: shares)

162,884,642 162,884,642 162,884,642 162,884,642

Basic earnings (loss) per ordinary share (in Korean won) (1,124) 1,418 942 4,704

(b) Basic earnings (loss) per preferred share for the three-month and nine-month periods ended

September 30, 2019 and 2018, is as follows:

2019 2018 Three months Nine months Three months Nine months Profit (loss) attributable to preferred shares (in millions of Korean won) (19,078) 25,010 16,401 81,470


42

Weighted average number of preferred shares outstanding (unit: shares)

17,181,300 17,181,300 17,181,300 17,181,300

Basic earnings (loss) per preferred share (in Korean won) (1,110) 1,456 955 4,742

27. Cash Flow Information

Cash flows from operating activities are presented using the indirect method. Details of cash generated from operations for the nine-month periods ended September 30, 2019 and 2018, are as follows:

(a) Cash generated from operations

(in millions of Korean won) 2019 2018 Profit for the period 256,001 847,721

Adjustments:

Interest expense, net 172,815 157,322 Exchange differences, net 5,510 14,994 Depreciation 543,572 494,688 Amortization 239,822 252,019 Loss on disposal of property, plant and equipment and intangible assets, net

26,332 25,074

Provisions for severance benefits 220,860 198,535 Additional provisions, net 397,508 291,036 Dividend income (208,753) (188,532) Income tax expense 75,196 273,300 Gain on disposal of investments in subsidiaries, associates and joint ventures

(149,836) (8)

Impairment loss on investments in subsidiaries, associates and joint ventures

6,636 -

Other 433,869 19,730 1,763,531 1,538,158

Changes in operating assets and liabilities:

Decrease (increase) in trade receivables (786,380) 639,703 Decrease in other receivables 52,873 68,161 Decrease (increase) in inventories 91,911 (168,843) Increase in contract assets (68,276) (203,671) Increase in other assets (286,460) (101,148) Increase (decrease) in trade payables 211,095 (432,835) Decrease in other payables (700,236) (223,119) Decrease in provisions (278,334) (270,398) Increase (decrease) in contract liabilities (55,824) 6,421 Increase (decrease) in other liabilities 154,565 (246,032) Payment of defined benefit liability (34,875) (26,494) Deposit in plan assets, net (34,238) (27,450)

(1,734,179) (985,705) Cash generated from operations 285,353 1,400,174


43

(b) Changes in liabilities from financing activities

2019 Non-cash transactions

(in millions of Korean won) At Jan.1

Net cash flow from financing

activities Addition and

others Exchange

differences Amortization and others

At Sept. 30 Short-term borrowings - 231,554 - 5,081 - 236,635

Long-term borrowings 2,621,536 245,750 - 22,367 - 2,889,653

Debentures 5,278,976 (174,985) - 29,996 2,162 5,136,149

Lease liabilities 74,107 (25,285) 52,769 58 211 101,860

Total 7,974,619 277,034 52,769 57,502 2,373 8,364,297

2018 Non-cash transactions

(in millions of Korean won) At Jan. 1 Net cash flow from financing activities

Exchange differences Amortization At Sept. 30

Short-term borrowings 127,925 (127,925) - - -

Long-term borrowings 2,177,140 435,383 9,474 - 2,621,997

Debentures 5,136,775 313,674 23,665 2,506 5,476,620

Total 7,441,840 621,132 33,139 2,506 8,098,617

(c) Significant non-cash transactions

(in millions of Korean won) 2019 2018 Reclassification of construction-in-progress to property, plant and equipment 92,346 367,974 Reclassification of construction-in-progress to intangible assets 220,944 170,859 Reclassification of current portion of borrowings and debentures 611,049 747,135 Other payables to acquire property, plant and equipment 37,399 49,826 Other payables to acquire intangible assets 5,499 5,994


44

(d) Assets and liabilities arising from the transfer of business

- Transfer of Membrane business

i) On December 17, 2018, Membrane business was transferred to LG Chem Ltd.

ii) Total consideration received and assets and liabilities of the transferred business are as follows:

(in millions of Korean won) Amount Total consideration

Cash and cash equivalents 3,488 Other receivables1 529

Assets of the transferred business: Inventories 2,175 Property, plant and equipment 3,680 Intangible assets 183 Other assets 75

Liabilities of the transferred business: Other payables 510 Provisions 80 Other liabilities 399

1 Collected during the three-month period ended March 31, 2019.

- Transfer of OLED T-Con Chip design business

i) On July 1, 2018, OLED T-Con Chip design business was transferred to Silicon Works Co., Ltd.

ii) Total consideration received and assets and liabilities of the transferred business are as follows:

(in millions of Korean won) Amount Total consideration

Cash and cash equivalents 46,130 Assets of the transferred business:

Trade receivables 7,880 Inventories 2,508 Property, plant and equipment 9

Liabilities of the transferred business: Trade payables 2,592 Contract liabilities 452 Other liabilities 12


45

28. Contingencies

(a) At the end of the reporting period, the Company is provided with performance guarantees of ￦192,885 million (December 31, 2018: ￦218,461 million) from Seoul Guarantee Insurance and one other financial institution relating to the performance guarantees. The Company is also provided with guarantee of principal amounting to EUR 100 million (December 31, 2018: USD 200 million and EUR 100 million) and interests from Shinhan Bank for the guaranteed private placement bonds.

(b) At the end of the reporting period, the financial guarantees provided by the Company to related parties amount to ￦3,973,368 million (December 31, 2018: ￦3,846,637 million) on the indebtedness of its subsidiaries. Details are as follows:


Beneficiaries September 30,

2019 December 31,

2018 LG Electronics European Shared Service Center B.V.(LGESC) Citibank and others 912,881 820,985

LG Electronics do Brasil Ltda.(LGEBR) Chubb and others 781,884 743,021

LG Electronics U.S.A., Inc.(LGEUS) Citibank and others 571,929 531,098 LG Electronics (China) Co., Ltd.(LGECH) Citibank and others 279,622 263,743

LG Electronics Peru S.A.(LGEPR) Scotiabank and others 204,055 190,332 LG Electronics Vietnam Haiphong Co., Ltd.(LGEVH) HSBC and others 136,470 154,715

LG Electronics Inc Chile Limitada(LGECL) Scotiabank and others 134,246 127,169

LG Electronics Algeria SARL(LGEAS) Citibank and others 131,473 105,881

LG Electronics Ticaret A.S.(LGETK) HSBC and others 128,449 216,421

LG Electronics Morocco S.A.R.L.(LGEMC) Citibank and others 95,080 90,175

LG Electronics Colombia Limitada(LGECB) Citibank and others 92,663 90,015

LG Electronics RUS, LLC(LGERA) Citibank and others 85,212 76,884

JSC LG Electronics Almaty Kazakhstan(LGEAK) Citibank 60,065 71,558

LG Electronics Egypt S.A.E(LGEEG) Credit Agricole and others 54,656 95,880

LG Electronics Philippines Inc.(LGEPH) ANZ and others 47,692 44,389

LG Electronics India Pvt. Ltd.(LGEIL) Citibank and others 38,936 52,435

LG Electronics (M) Sdn. Bhd(LGEML) Citibank 36,613 10,042

LG Electronics Thailand Co., Ltd.(LGETH) Citibank 27,947 25,797

LG Electronics Italia S.P.A.(LGEIS) Intesa 26,293 25,583

LG Electronics Australia Pty, Ltd.(LGEAP) Citibank 24,092 23,525

Others Citibank and others 103,110 86,989


46


Beneficiaries September 30,

2019 December 31,

2018 Total 3,973,368 3,846,637

(c) At the end of the reporting period, the Company is providing KEB Hana Bank with a subrogation payment obligation for customers up to ￦46,000 million (December 31, 2018: ￦46,000 million).

(d) There are a number of legal actions, disputes and investigations arising from the normal course of business that remain pending at the end of the reporting period. The ultimate effect of those lawsuits on the financial position of the Company cannot reflect a reasonable expectation. Management does not expect the outcome of the litigations will have a material effect on the Company’s financial position.

29. Commitments

(a) At the end of the reporting period, the Company has overdraft facility agreements with various banks, including Shinhan Bank, with a limit of ￦165,500 million (December 31, 2018: ￦165,500 million).

(b) At the end of the reporting period, the Company has sales agreements for export trade receivables with KEB Hana Bank and 19 other banks amounting to ￦2,084,256 million (December 31, 2018: ￦1,926,486 million) and has sales agreements for domestic trade receivables with MUFG Bank and one other bank amounting to ￦900,000 million (December 31, 2018: ￦690,000 million).

(c) At the end of the reporting period, the Company has corporate electronic settlement services contracts and vendor prepayment services contracts with Shinhan Bank and seven other banks for up to ￦1,210,000 million (December 31, 2018: ￦1,160,000 million) in connection with the payment of trade payables.

(d) At the end of the reporting period, the Company has other trade financing agreements and loan commitments with financial institutions, including Shinhan Bank, of up to ￦510,065 million (December 31, 2018: ￦601,258 million).

(e) Contractual commitments for the acquisition of assets

Assets contracted for, but not yet acquired at the end of the reporting period, are as follows:

(in millions of Korean won) September 30, 2019 December 31, 2018 Property, plant and equipment 77,215 107,768 Intangible assets 140,811 40,223 Investments in subsidiaries, associates and joint ventures 97,977 9,863

Total 316,003 157,854


47

(f) Operating lease commitments – the Company as a lessor

i) The Company has non-cancellable operating lease agreements regarding healthcare rental business that lends water purifiers and others to customers and real estate rental business. The future aggregate lease receipts under operating leases at the end of the reporting period, are as follows:

September 30, 2019


Within 1 year Within 2

years Within 3

years Within 4

years Over 4 years Total lease payments

Healthcare rental 507,967 406,425 220,706 36,805 - 1,171,903 Real estate rental 70 - - - - 70 Total 508,037 406,425 220,706 36,805 - 1,171,973

ii) The Company recognized ￦315,576 million (September 30, 2018: ￦205,756 million) in lease income for the nine-month period ended September 30, 2019.

(g) Trademark license commitments

At the end of the reporting period, the Company has various agreements as follows:

Purpose Related products Provided by Used by

Use of license Home appliance/ Mobile

Qualcomm Incorporated and others LG Electronics Inc.

Provision of license Home appliance/ Mobile LG Electronics Inc. Panasonic Corporation

and others


48

30. Related Party

(a) Major transactions for the nine-month periods ended September 30, 2019 and 2018, and balances of receivables and payables from transaction with related parties as at September 30, 2019 and December 31, 2018, are as follows:

i) Major income and expense transactions with related parties

(in millions of Korean won) 2019

Income transactions Expense transactions Classification Name Sales Others Total Purchases Others Total Significantly influencing the Company

LG Corp. 799 - 799 - 106,796 106,796

Subsidiaries LG Innotek Co., Ltd. 71,097 28,438 99,535 296,197 6,183 302,380

Hiplaza Co., Ltd. 1,643,766 - 1,643,766 24,460 7 24,467

LG Electronics U.S.A., Inc. 3,366,735 4,404 3,371,139 1,766 53,719 55,485

Inspur LG Digital Mobile Communications Co., Ltd.

240,044 134 240,178 45,190 5,319 50,509

LG Electronics Vietnam Haiphong Co., Ltd.

1,210,174 19,854 1,230,028 78,776 15,787 94,563

LG Electronics do Brasil Ltda.

376,240 1,333 377,573 2,046 3,534 5,580

LG Electronics Canada, Inc. 221,811 20 221,831 - 4,341 4,341

Qingdao LG Inspur Digital Communication Co., Ltd.

205,751 11 205,762 83,936 752 84,688

LG Electronics (Kunshan) Co., Ltd.

98,080 219 98,299 5,633 833 6,466

LG Electronics Australia Pty, Ltd.

217,491 113 217,604 54 4,179 4,233

LG Electronics RUS, LLC 215,842 219 216,061 686 3,608 4,294

LG Electronics India Pvt. Ltd. 228,660 10,667 239,327 5,088 2,162 7,250

LG Electronics Deutschland GmbH

76,231 22,307 98,538 10,185 33,723 43,908

LG Electronics Japan, Inc. 241,361 82 241,443 3,450 18,661 22,111

LG Electronics Reynosa S.A. DE C.V.

296,128 97 296,225 409 31 440

LG Electronics Mlawa Sp. z.O.O.

293,369 87 293,456 8,122 3,648 11,770

LG Electronics Egypt S.A.E 69,535 934 70,469 - 477 477

LG Electronics Nanjing New Technology Co.,Ltd.

200,415 - 200,415 351,733 1,958 353,691

LG Electronics Mexicali, S.A. DE C.V.

139,924 12 139,936 1,257 2 1,259

LG Electronics Polska Sp. Z.O.O

84,440 584 85,024 1,294 3,644 4,938

LG Electronics Panama, S.A. 65,808 183 65,991 - 685 685

P.T. LG Electronics Indonesia

98,008 132 98,140 50,249 381 50,630

LG Electronics (Hangzhou) Co., Ltd.

140,862 53 140,915 20,209 2,092 22,301


49


Income transactions Expense transactions Classification Name Sales Others Total Purchases Others Total

LG Electronics Inc Chile Limitada

10,577 90 10,667 - 323 323

LG Electronics Colombia Limitada

45,890 24 45,914 - 647 647

LG Electronics Tianjin Appliances Co., Ltd.

46,387 1,385 47,772 156,630 120 156,750

LG Electronics Vehicle Components U.S.A, LLC

255,429 900 256,329 2,169 29,243 31,412

Hi-M.Solutek 47,834 - 47,834 189,953 - 189,953

Others 2,541,545 23,546 2,565,091 443,947 231,516 675,463

Subtotal 12,749,434 115,828 12,865,262 1,783,439 427,575 2,211,014

Associates LG Display Co., Ltd. and its subsidiaries

726,487 71,861 798,348 739,301 3,774 743,075

Ericsson-LG Co., Ltd. and its subsidiaries

106 - 106 - - -

Hitachi-LG Data Storage Inc.(HLDS) and its subsidiaries

1,828 - 1,828 22,459 318 22,777

LG Fuel Cell Systems Inc. and its subsidiaries

49 510 559 13 69 82

Robostar Co.,Ltd. 1 - 1 32,952 5,121 38,073

Kiwigrid GmbH - - - - 479 479

ROBOTIS Co., Ltd. - - - - 202 202

Korea Information Certificate Authority Inc.

1 - 1 - 64 64

Acryl Inc. - - - - 548 548

Subtotal 728,472 72,371 800,843 794,725 10,575 805,300

Joint ventures Arcelik-LG Klima Sanayi ve Ticaret A.S.(LGEAT)

- - - 28 - 28

LG-MRI LLC 2,336 - 2,336 - - -

Subtotal 2,336 - 2,336 28 - 28 Other related parties

LG CNS Co., Ltd. and its subsidiaries

110,988 2 110,990 70,660 217,765 288,425

S&I Corp. and its subsidiaries2

12,908 4,296 17,204 218,667 142,714 361,381

LG Management Development Institute

2 - 2 7 20,462 20,469

LG SPORTS Ltd. 3 21 24 - 10,825 10,825

LG MMA Ltd. 1 - 1 - - -

Subtotal 123,902 4,319 128,221 289,334 391,766 681,100

Others1 LG Chem Ltd. and its subsidiaries and joint ventures

626,559 18,462 645,021 446,489 8,533 455,022

LG INTERNATIONAL CORP and its subsidiaries

54,424 3,123 57,547 511,423 635,114 1,146,537

LG Uplus Corp and its subsidiaries

364,009 34 364,043 1,194 1,795 2,989

LG HAUSYS,LTD. and its subsidiaries and

4,771 234 5,005 1,182 341 1,523


50



associates

Silicon Works Co., Ltd. 2,056 2,253 4,309 9,184 - 9,184

LG HOUSEHOLD & HEALTH CARE LTD and its subsidiaries

5,914 1 5,915 162 212 374

GⅡR Inc. and its

subsidiaries 155 47 202 76 164,273 164,349

SERVEONE Co., Ltd.2 48 2,492 2,540 144,761 27,591 172,352

Subtotal 1,057,936 26,646 1,084,582 1,114,471 837,859 1,952,330

Total 14,662,879 219,164 14,882,043 3,981,997 1,774,571 5,756,568


Income transactions Expense transactions Classification Name Sales Others Total Purchases Others Total Significantly influencing the Company

LG Corp. 1,879 - 1,879 - 105,394 105,394

Subsidiaries LG Innotek Co., Ltd. 205,160 18,148 223,308 351,382 10,180 361,562

Hiplaza Co., Ltd. 1,515,850 6,520 1,522,370 20 26,456 26,476

LG Electronics U.S.A., Inc. 2,531,008 7,238 2,538,246 1,527 48,155 49,682

LG Electronics Mobilecomm U.S.A., Inc.

968,652 31 968,683 104 4,354 4,458


752,592 857 753,449 173,494 18,653 192,147


905,802 611 906,413 36,141 13,615 49,756


341,348 97 341,445 811 1,956 2,767

LG Electronics Canada, Inc. 282,883 11 282,894 62 1,448 1,510


277,711 525 278,236 153,398 4,379 157,777


286,315 - 286,315 5,138 632 5,770


248,733 8 248,741 38 2,792 2,830

LG Electronics RUS, LLC 216,776 302 217,078 273 476 749

LG Electronics India Pvt. Ltd. 234,393 21,216 255,609 4,086 1,187 5,273


323,151 25,655 348,806 2,035 35,870 37,905

LG Electronics Japan, Inc. 291,291 56 291,347 3,532 16,751 20,283


280,606 48 280,654 1,421 116 1,537


252,590 28 252,618 1,311 3,826 5,137

LG Electronics Egypt S.A.E 93,445 3,619 97,064 - 327 327


159,614 19 159,633 310,556 1,053 311,609


51




147,382 10 147,392 1,826 11 1,837


117,546 567 118,113 1,657 1,384 3,041

LG Electronics Panama, S.A. 107,505 144 107,649 - 129 129


100,563 381 100,944 46,163 13 46,176


92,035 88 92,123 25,314 381 25,695


69,935 178 70,113 - 227 227


73,465 92 73,557 15 401 416


44,476 216 44,692 107,675 167 107,842


366,343 58 366,401 1,856 22,594 24,450

Hi-M.Solutek 27,923 7,566 35,489 86,441 44,894 131,335

Others 2,790,409 26,671 2,817,080 187,837 267,827 455,664

Subtotal 14,105,502 120,960 14,226,462 1,504,113 530,254 2,034,367


839,106 25,908 865,014 915,764 9,150 924,914


1,417 45 1,462 2,552 - 2,552

Hitachi-LG Data Stroage Inc.(HLDS) and its subsidiaries

563 - 563 30,001 254 30,255


2,502 - 2,502 - - -


- - - - 2 2

Subtotal 843,588 25,953 869,541 948,317 9,406 957,723


- - - 46,230 - 46,230

LG-MRI LLC 1,489 - 1,489 838 - 838

Subtotal 1,489 - 1,489 47,068 - 47,068 Other related parties


84,692 71 84,763 89,659 232,594 322,253

SERVEONE Co., Ltd. and its subsidiaries

25,988 7,576 33,564 422,072 253,201 675,273

LB Lusem CO., LTD.3 - - - 205 1 206


- - - 82 18,970 19,052

LG SPORTS Ltd. 2 19 21 - 9,334 9,334

Subtotal 110,682 7,666 118,348 512,018 514,100 1,026,118


1,089,186 10,949 1,100,135 565,767 650 566,417


52




64,389 1,371 65,760 513,000 551,886 1,064,886


446,539 86 446,625 1,316 3,759 5,075

LG HAUSYS,LTD. and its subsidiaries and joint ventures

9,263 263 9,526 4,801 6 4,807

Silicon Works Co., Ltd 1,701 47,450 49,151 5,412 - 5,412

LG HOUSEHOLD & HEALTH CARE LTD. and its subsidiaries

3,778 5 3,783 151 285 436

GⅡR Inc. and its

subsidiaries 2,259 12 2,271 125 149,346 149,471

Subtotal 1,617,115 60,136 1,677,251 1,090,572 705,932 1,796,504

Total 16,680,255 214,715 16,894,970 4,102,088 1,865,086 5,967,174

1 Although the entities are not the related parties of the Company in accordance with Korean IFRS 1024, the entity belongs to the Large Enterprise Group to which the Company also belongs in accordance with the Monopoly Regulation and Fair Trade Act.

2 SERVEONE Co., Ltd. was spun off into S&I Corp. and SERVEONE Co., Ltd. on December 1, 2018. On May 15, 2019, S&I Corp., the existing entity, disposed 60.1% shares of SERVEONE Co., Ltd., a newly established entity. On July 24, 2019, SERVEONE Co., Ltd., a newly established entity, was excluded from the Large Enterprise Group in accordance with the Monopoly Regulation and Fair Trade Act.

3 All shares of LUSEM CO., LTD. were sold to LB SEMICON CO., LTD. on February 27, 2018, and the name of LUSEM CO., LTD. was changed to LB Lusem CO., LTD. on March 15, 2018.

ii) The balances of receivables from and payables to related parties

(in millions of Korean won) September 30, 2019

Receivables Payables

Classification Name Trade

receivables Loans Other

receivables Total Trade

payables Borrowings Other

payables Total Significantly influencing the Company

LG Corp. 38 - 25,605 25,643 - - 782 782

Subsidiaries LG Innotek Co., Ltd. 33,223 - 11,944 45,167 55,367 - 13,986 69,353

Hiplaza Co., Ltd. 178,711 - 24,656 203,367 - - 7,739 7,739

LG Electronics U.S.A., Inc.

572,498 - 2,629 575,127 - - 6,419 6,419


- - 1,199 1,199 10,730 - 959 11,689


445,938 - 3,528 449,466 345,747 - 2,325 348,072


136,234 - 12,164 148,398 126 - 864 990

LG Electronics Canada, Inc.

38,140 - - 38,140 - - 644 644

Qingdao LG Inspur Digital 23,995 - 5,107 29,102 98,871 - 45 98,916


53







payables Total Communication Co., Ltd.


31,863 - 1,668 33,531 33,824 - 376 34,200


21,835 - - 21,835 - - 406 406

LG Electronics RUS, LLC 65,295 - 10,032 75,327 633 - 752 1,385

LG Electronics India Pvt. Ltd.

33,700 - 10,361 44,061 2,594 - 185 2,779


138,762 - 2,138 140,900 - - 4,120 4,120

LG Electronics Japan, Inc. 16,716 - - 16,716 - - 2,700 2,700


35,709 - 5,061 40,770 147,458 - - 147,458


58,350 - 21 58,371 661,075 - 672 661,747

LG Electronics Egypt S.A.E

6,677 - 64,160 70,837 11,162 - 147 11,309

LG Electronics Nanjing New Technology Co.,Ltd

19,509 - 160 19,669 245,953 - 165 246,118


49,263 - 2,992 52,255 108,247 - - 108,247


64,957 - - 64,957 - - 621 621

LG Electronics Panama, S.A.

92,545 - - 92,545 - - 215 215


16,139 - 488 16,627 212,915 - 29 212,944


60,752 - 1,242 61,994 2,635 - 946 3,581


29,783 - - 29,783 - - 33 33


92,905 - - 92,905 - - 119 119


8,495 - 4,393 12,888 60,794 - 38 60,832


136,626 - 340 136,966 - - 3,476 3,476

Hi-M.Solutek 7,497 - 100 7,597 - - 31,149 31,149

Others 887,511 - 42,563 930,074 797,109 499,563 60,078 1,356,750

Subtotal 3,303,628 - 206,946 3,510,574 2,795,240 499,563 139,208 3,434,011


155,554 - 95,911 251,465 183,545 - 66,794 250,339


1,034 - - 1,034 28,807 - 349 29,156


- - - - - - 72 72

Robostar Co.,Ltd. - - - - 615 - 12,653 13,268

ROBOTIS Co., Ltd. - - - - - - 148 148


54







payables Total


- - - - - - 22 22

Acryl Inc. - - - - - - 256 256

Subtotal 156,588 - 95,911 252,499 212,967 - 80,294 293,261

Joint ventures LG-MRI LLC. 839 - - 839 - - - -Other related parties


31,421 - 999 32,420 1,022 - 85,666 86,688


8,253 - 58,677 66,930 40 - 49,332 49,372


- - 15,660 15,660 - - 2,321 2,321

LG SPORTS Ltd. - - - - - - 714 714

Subtotal 39,674 - 75,336 115,010 1,062 - 138,033 139,095


319,240 - 295,314 614,554 184,601 - 42,752 227,353


25,446 - 1,310 26,756 201,070 - 122,995 324,065


22,933 - 89 23,022 - - 148 148

LG HAUSYS,LTD. and its subsidiaries and associates

1,062 - 1,255 2,317 469 - 790 1,259

Silicon Works Co., Ltd. 215 - 290 505 3,181 - 1,298 4,479


59 - 1,459 1,518 - - 269 269

GⅡR Inc. and its

subsidiaries 12 - - 12 - - 118,193 118,193

Techcross Environmental Services Inc.3

1 - - 1 - - 192 192

Techcross Water & Energy Inc.3

21 - 84 105 - - 188 188

Subtotal 368,989 - 299,801 668,790 389,321 - 286,825 676,146

Total 3,869,756 - 703,599 4,573,355 3,398,590 499,563 645,142 4,543,295







payables Total Significantly influencing the Company

LG Corp. 42 - 26,068 26,110 - - - -

Subsidiaries LG Innotek Co., Ltd. 119,338 - 8,102 127,440 121,495 - 31,240 152,735

Hiplaza Co., Ltd. 166,265 - 22,790 189,055 - - 7,112 7,112

LG Electronics U.S.A., 273,496 - 72,993 346,489 - - 139,866 139,866


55







payables Total Inc.


25,430 - 1,180 26,610 296,959 - 815 297,774


307,408 - 588 307,996 182,917 - 1,420 184,337


107,098 - 40,575 147,673 184 - 325 509

LG Electronics Canada, Inc.

24,518 - - 24,518 - - 409 409


16,527 - 5,025 21,552 121,781 - 35 121,816


43,192 - 3,512 46,704 50,047 - 370 50,417


59,931 - 1,615 61,546 - - 84 84

LG Electronics RUS, LLC 39,246 - 13,812 53,058 640 - 71 711

LG Electronics India Pvt. Ltd.

34,300 - 7,653 41,953 404 - 591 995


85,735 - 10,720 96,455 - - 7,080 7,080

LG Electronics Japan, Inc. 66,765 - - 66,765 - - 3,084 3,084


20,412 - 4,402 24,814 97,454 - - 97,454


46,794 - 61 46,855 759,727 - 533 760,260

LG Electronics Egypt S.A.E

4,107 - 78,560 82,667 2,784 - 110 2,894


38,011 - 145 38,156 195,626 - 39 195,665


40,700 - 4,456 45,156 49,605 - - 49,605


41,452 - 188 41,640 - - 359 359

LG Electronics Panama, S.A.

46,924 - - 46,924 - - 38 38


12,692 - 169 12,861 216,133 - 102 216,235


44,162 - 942 45,104 1,831 - 104 1,935


49,754 - 49 49,803 - - 28 28


74,614 - 25 74,639 - - 34 34


10,789 - 1,449 12,238 56,012 - 30 56,042


112,509 - 412 112,921 - - 7,840 7,840

Hi-M.Solutek 8,436 - 47 8,483 - - 27,853 27,853


56







payables Total Others 546,862 - 49,923 596,785 479,985 - 44,425 524,410

Subtotal 2,467,467 - 329,393 2,796,860 2,633,584 - 273,997 2,907,581


414,242 - 130,319 544,561 212,350 - 137,027 349,377


31 - - 31 534 - - 534


109 - - 109 11,685 - 397 12,082


12 - - 12 - - 28 28

Robostar Co.,Ltd. - - - - 13,406 - 399 13,805

Kiwigrid GmbH - - - - - - 54 54

ROBOTIS Co., Ltd. - - - - - - 168 168


- - - - - - 55 55

Acryl Inc. - - - - - - 312 312

Subtotal 414,394 - 130,319 544,713 237,975 - 138,440 376,415


- - - - 4,175 - - 4,175

LG-MRI LLC. 643 - - 643 - - - -

Subtotal 643 - - 643 4,175 - - 4,175 Other related parties


19,106 - 1,972 21,078 147 - 121,579 121,726


2,444 - 59,587 62,031 124,740 - 181,643 306,383


- - 15,660 15,660 - - 1,637 1,637

LG SPORTS Ltd. - - - - - - 1,859 1,859

Subtotal 21,550 - 77,219 98,769 124,887 - 306,718 431,605


365,515 - 270,879 636,394 216,571 - 59,817 276,388


14,102 - 8,917 23,019 276,367 - 114,247 390,614


13,879 - 148 14,027 - - 369 369

LG HAUSYS,LTD. and its subsidiaries and associates

519 - 1,344 1,863 - - 476 476

Silicon Works Co., Ltd. 362 - - 362 1,581 - 748 2,329


2,247 - 350 2,597 - - 608 608

GⅡR Inc. and its 76 - - 76 - - 200,560 200,560


57







payables Total subsidiaries

Subtotal 396,700 - 281,638 678,338 494,519 - 376,825 871,344

Total 3,300,796 - 844,637 4,145,433 3,495,140 - 1,095,980 4,591,120

1 Although the entities are not the related parties of the Company in accordance with Korean IFRS 1024, the entity belongs to the Large Enterprise Group to which the Company also belongs in accordance with the Monopoly Regulation and Fair Trade Act.

2 SERVEONE Co., Ltd. was spun off into S&I Corp. and SERVEONE Co., Ltd. on December 1, 2018. On May 15, 2019, S&I Corp., the existing entity, disposed 60.1% shares of SERVEONE Co., Ltd., a newly established entity. On July 24, 2019, SERVEONE Co., Ltd., a newly established entity, was excluded from the Large Enterprise Group in accordance with the Monopoly Regulation and Fair Trade Act.

3 All shares of Hi Entech Co., Ltd. and LG Hitachi Water Solution Co., Ltd. were disposed to Techcross Vision Investment Inc. on September 26, 2019. And, the name of Hi Entech Co., Ltd. and LG Hitachi Water Solution Co., Ltd. were changed to Techcross Environmental Services Inc. and Techcross Water & Energy Inc., respectively. At the end of the reporting period, Techcross Environmental Services Inc. and Techcross Water & Energy Inc. belong to the Large Enterprise Group in accordance with the Monopoly Regulations and Fair Trade Act.

iii) Significant capital transactions with related parties and others for the nine-month periods ended September 30, 2019 and 2018, are as follows:


Classification Name

Dividend income

Dividend

paid

Cash distribution (reduction)

Financing loan transactions

Financing borrowing transactions

Loans Collections Borrowings Repayments Significantly influencing the Company

LG Corp. - 41,321 - - - - -

Subsidiaries LG Innotek Co., Ltd. 2,896 - - - - - -

LG Hitachi Water Solution Co., Ltd. 11,705 - - - - - -

Hi Entech Co., Ltd. 20,003 - - - - - -

LG Electronics RUS, LLC 57,345 - - - - - -


16,461 - - - - - -

LG Electronics (Hangzhou) Co., Ltd. 718 - - - - - -

NanJing LG-Panda Appliances Co., Ltd. 6,485 - - - - - -

LG Electronics Fund I LLC. - - 6,484 - - - -

LG Electronics European Shared Service Center B.V.

- - - - - 492,304 -

LG Electronics Huizhou Ltd. 3,174 - - - - - -


26,037 - - - - - -

Inspur LG Digital Mobile Communications Co., 63,108 - - - - - -


58


Classification Name

Dividend income

Dividend

paid




Loans Collections Borrowings Repayments Ltd.

Subtotal 207,932 - 6,484 - - 492,304 -

Associates LG HOLDINGS (HK) LIMITED. - - (29,182) - - - -

LG-LHT Passenger Solutions GmbH - - 702 - - - -

LG-LHT Aircraft Solutions GmbH - - 1,234 - - - -

Korea Information Certificate Authority Inc. 161 - - - - - -

Robostar Co.,Ltd. 146 - - - - - -

Acryl Inc. - - 1,000 - - - -

Subtotal 307 - (26,246) - - - -

Total 208,239 41,321 (19,762) - - 492,304 -


Classification Name

Dividend income

Dividend

paid




Loans Collections Borrowings Repayments Significantly influencing the Company

LG Corp. - 22,038 - - - - -

Subsidiaries LG Innotek Co., Ltd. 2,414 - - - - - -

LG Electronics RUS, LLC 63,354 - - - - - -


10,391 - - - - - -

LG Electronics (Hangzhou) Co., Ltd. 473 - - - - - -

NanJing LG-Panda Appliances Co., Ltd. 7,087 - - - - - -

LG Electronics Huizhou Ltd. 3,051 - - - - - -


25,764 - - - - - -


7,893 - - - - - -

LGE Alliance Fund Ⅱ - - (1,536) - - - -

Subtotal 120,427 - (1,536) - - - -

Associates LG Display Co., Ltd. 67,813 - - - - - -

Korea Information Certificate Authority Inc. 100 - - - - - -

LG Fuel Cell Systems Inc. - - 7,178 - - - -

Subtotal 67,913 - 7,178 - - - -

Total 188,340 22,038 5,642 - - - -

(b) The compensation paid or payable to key management personnel for the nine-month periods

ended September 30, 2019 and 2018, consists of:


59

(in millions of Korean won) 2019 2018 Salaries and other short-term employee benefits 15,622 16,175 Post-employment benefits 2,585 2,833 Other long-term benefits 80 84 Total 18,287 19,092

Key management refers to the directors who have significant control and responsibilities on the Company’s business plans, operations and control.

(c) The payment guarantees for the financial support of related parties at the end of the reporting period are presented in Note 28.

(d) There is no collateral provided by the Company for the financial support of related parties at the end of the reporting period.

(e) The Company has not recognized any bad debt expense or allowance for trade receivables from related parties at the end of the reporting period.


60

31. Risk Management

Financial Risk Management

The Company’s financial risk management (“FRM”) policy supports each business division to achieve excellent performance solidly and continuously against market risk, credit risk and liquidity risk. In addition, FRM helps the Company to enhance cost competitiveness through cost-efficient financing cost by improving financial structure and effective cash management.

While cooperating with other divisions, Finance Division in the Company mainly implements FRM. This involves setting-up risk management policies and recognizing, evaluating and hedging risks from a global point of view.

The Company mitigates the adverse effects from financial risk by monitoring the risk periodically and updating FRM policy each year.

The carrying amount, and profit or loss of each category of financial instruments and the details of borrowings related to the financial risk management are presented in Note 4 and Note 11, respectively.

(a) Market risk

i) Foreign exchange risk

Due to its multinational business operations, the Company is mainly exposed to foreign exchange risk on the US Dollar and Euro.

The purpose of foreign exchange risk management is to provide the foundation of a stable business operation by minimizing the uncertainty and volatility of foreign exchange gains and losses from foreign exchange rate fluctuations.

The Company’s foreign exchange risk management is implemented under its own foreign exchange policy through which the Company can minimize the exposure to foreign exchange risk by preferentially making equal amount of foreign exchange assets and liabilities from general operating activities. And the Company continuously considers efficient foreign exchange risk hedges against its remaining exposure with derivative financial instruments and scrutinizes changes in foreign exchange exposure and the results of hedging activities on a monthly basis. Speculative foreign exchange trading is prohibited in principle.

As at September 30, 2019 and December 31, 2018, if the foreign exchange rate of the Korean won fluctuated for monetary assets and liabilities denominated in major foreign currency other than functional currency by 10% while other variables were fixed, the effects on income (loss) before tax would be as follows:


September 30, 2019 December 31, 2018 10% increase 10% decrease 10% increase 10% decrease

USD/KRW (27,039) 27,039 (31,735) 31,735 EUR/KRW 3,696 (3,696) (5,091) 5,091


61

ii) Interest rate risk

The Company is exposed to interest rate risk through changes in interest-bearing liabilities or assets. The risk mainly arises from borrowings and deposits held by financial institutions with variable interest rates linked to market interest rate changes in the future. The objective of interest rate risk management lies in improving corporate value by minimizing uncertainty caused by fluctuations in interest rates and minimizing net interest expense.

The Company minimizes its borrowings from others and optimizes its deposits. The Company periodically establishes the plan for reaction by the monitoring trends of internal and external interest rates.

If interest rates fluctuate by 1%p without other variables changing, the effects on income and expenses related to borrowings and deposits held by financial institutions with variable interest rates for the nine-month periods ended September 30, 2019 and 2018, are as follows: 2019 2018

(in millions of Korean won) 1%p increase 1%p decrease 1%p increase 1%p decrease

Interest income 8,066 (8,066) 11,895 (11,895) Interest expense 3,747 (3,747) - -

iii) Details of derivatives contracts are as follows:

Hedging purposes

The Company entered into the cross-currency swap contracts and interest rate swap contracts to hedge cash flow risks related to the floating interest rates and foreign exchange rates of debentures.

Details of hedging instruments are as follows:

Contractor

Contracted amount

(in millions)

Contracted currency

rate

Interest rate (paid) (%)

Starting date

Expiration date

Book amount (in millions of Korean won)

Assets Liabilities

USD/KRW CRS MUFG Bank

and others USD 530 1,067.9 ~ 1,155.2 2.17 ~ 3.64 2017.2.2

~ 2018. 6. 8 2020.11.23 ~ 2028. 6. 8 10,335 4,268

Interest rate swap Woori Bank

and others KRW 1,270,000 / EUR 100 - 1.00 ~ 4.53 2014. 1. 3

~ 2017. 8.24 2023. 2.24 ~ 2030. 7. 7 - 82,284

Interest rates received for the above swap contracts are equal to annual interest rates of borrowings (Note 11).


62

Details of hedged items are as follows:

(in millions of Korean won) Hedged items Book amount Changes in

fair value (net of tax) USD/KRW CRS Borrowings 635,153 (23,681) Interest rate swap Borrowings 1,385,667 27,318

The results of hedge accounting are as follows:


Changes in fair value of derivatives (net of tax)

Line items in profit or loss

Reclassified to profit or loss (net of tax)

Other comprehensive loss

(net of tax)

Accumulated other

comprehensive loss

USD/KRW CRS 23,681 Interest expense

and exchange differences

(36,484) (12,803) (32,768)

Interest rate swap (27,318) Interest expense 5,809 (21,509) (58,690)

Trading purposes

The Company entered into a contract to additionally purchase shares of Robostar Co.,Ltd. in December 2019 at the average price of immediate four months with a 25% mark up. In relation to this share purchase contract, the Company recognized derivative liabilities amounting to \2,713 million at the time of acquisition of Robostar Co.,Ltd. and recognized gain on valuation of derivatives amounting to \320 million during the nine-month period ended September 30, 2019. Accordingly, the related derivative liabilities amounted to \1,542 million at the end of the reporting period.

iv) Price risk

The Company is exposed to price risk through equity securities owned by the Company classified as financial assets at fair value through other comprehensive income.

The listed securities owned by the Company are traded in the open market, and related to KOSDAQ Index.

The effect of price index’s fluctuation related to the listed securities on the equity (before applying the tax effect) is set out in the below table. The analysis is performed in respect of 30% increase/decrease in the price index under the assumption that other variations are consistent and the listed securities owned by the Company have correlation with the relevant past index.



30% increase 30% decrease 30% increase 30% decrease KOSDAQ 2,260 (2,260) 3,057 (3,057)

The valuation and the reclassification of the financial assets at fair value through other comprehensive income related to the market risk above are presented in Note 6.


63

(b) Credit risk

The Company operates a consistent Global Credit / TR (trade receivables) policy to manage credit risk exposure.

In regard to receivables, the Company operates an integrated receivable insurance program with the Korea Trade Insurance Corporation (K-SURE) and Seoul Guarantee Insurance (Coface). In an effort to minimize receivable credit risk, the Company applies the credit rating of the counterparty rated by insurers, when determining the insurance coverage. In addition, the Company performs stringent credit risk managements based on credit valuation criteria for receivables without insurance coverage or collateral.

At the end of reporting period, trade receivable balance of the Company, excluding the trade receivables from the subsidiaries, is ￦1,247,322 million (December 31, 2018: ￦1,289,032 million) and its risk is managed appropriately within insurer’s credit limit of ￦3,206,750 million (December 31, 2018: ￦3,223,554 million). Therefore, the Company determined that credit risk exposed to the Company is limited.

At the end of reporting period, the carrying amount of financial assets represents net of impairment loss to reflect Company’s maximum exposure to the credit risk.

(c) Liquidity risk

The Company forecasts its cash flow and liquidity status and sets action plans on a regular base to manage liquidity risk proactively. The Company systematically works with experts in four regional treasury centers to carry out fund and liquidity management that can react proactively to the changing global financial environment.

The Company maintains adequate amount of cash and committed credit facilities in Kookmin Bank and Shinhan Bank to cope with potential liquidity risk arising from financial distress.

In addition, the Company is able to source funds any time in domestic and international financial markets because it has good investment credit grades of AA Stable from Korea Investors Service, Korea Ratings and NICE Information Service, BBB from Standard & Poors, and Baa3 from Moody’s at the end of the reporting period.


64

i) Cash flow information on maturity of financial liabilities as at September 30, 2019, is as follows:

(in millions of Korean won) Total Within 1 year 1 to 2 years 2 to 5 years Over 5 years Trade payables 5,777,259 5,777,259 - - -

Borrowings 9,566,158 1,090,911 1,186,410 3,202,749 4,086,088

Lease liabilities 106,737 42,009 29,484 33,093 2,151

Other payables 1,617,278 1,616,137 100 1,041 -

Other financial liabilities 7,829 7,829 - - -

Total 17,075,261 8,534,145 1,215,994 3,236,883 4,088,239

The above cash flows are calculated at nominal value based on the earliest maturity dates, and include cash flows of principal and interests. Derivatives for cash flow hedges from changes in interest rate and exchange rate are reflected in the cash flows of related borrowings.

ii) The maturity analysis of financial guarantee contracts provided by the Company to subsidiaries and third party companies as at September 30, 2019, is as follows:

(in millions of Korean won) Total Within 1 year 1 to 2 years 3 to 5 years Over 5 years

Financial guarantee contracts 4,019,368 3,213,214 243,161 280,688 282,305

The financial guarantee contracts provided to the subsidiaries are analysed by their maturities according to the residual periods. And, the financial guarantee contracts provided to the third party companies are analysed at the maximum amount of guarantees allocated to earliest period in which the Company can be required to make the payments.

Capital Risk Management

The Company’s capital risk management purpose is to maximize shareholders’ value through maintaining a sound capital structure. The Company monitors financial ratios, such as liability to equity ratio and net borrowing ratio each month and implements required action plan to improve the capital structure.

Debt-to-equity ratio and net borrowing ratio as at September 30, 2019 and December 31, 2018, are as follows:

(in millions of Korean won, except for ratios) September 30, 2019 December 31, 2018 Liability (A) 19,164,112 18,502,583 Equity (B) 9,277,118 9,362,880 Cash and cash equivalents (C) 1,075,484 1,109,883 Borrowings and lease liabilities (D) 8,364,297 7,900,512 Debt-to-equity ratio (A/B) 206.6% 197.6% Net borrowings ratio ((D-C)/B) 78.6% 72.5%


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Fair Value Estimation

(a) The book amount and fair value of the Company’s financial assets and liabilities as at September 30, 2019 and December 31, 2018, are as follows:

September 30, 2019 Current Non-current (in millions of Korean won) Book amount Fair value Book amount Fair value Assets at fair value


Other financial assets - - 14,850 1

Financial assets at fair value through other comprehensive income

Trade receivables 19,318 1 - - Other financial assets

Listed equity securities - - 9,339 9,339 Unlisted equity securities - - 25,448 1

Derivatives for hedging purposes

Other financial assets - - 10,335 10,335 Assets at amortized cost

Financial assets at amortized cost

Cash and cash equivalents 1,075,484 1

- - Deposits held by financial

institutions 80,500 1

1,583 1,583

Trade receivables 4,468,452 1

- - Other receivables 553,861

1 186,750 176,417

Total 6,197,615 248,305

September 30, 2019 Current Non-current (in millions of Korean won) Book amount Fair value Book amount Fair value Liabilities at fair value

Financial liabilities at fair value through profit or loss

Other financial liabilities 1,542 1,542 - - Derivatives for hedging purposes

Other financial liabilities - - 86,552 86,552 Liabilities at amortized cost

Financial liabilities at amortized cost Trade payables 5,777,259 1 - - Borrowings 857,839

1 7,404,598 7,718,585

Other payables 1,616,137 1

1,141 1,082 Other liabilities

Lease liabilities 40,509 2 61,351 2 Other financial liabilities 6,675

3 10,016

3

Total 8,299,961 7,563,658


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December 31, 2018 Current Non-current (in millions of Korean won) Book amount Fair value Book amount Fair value Assets at fair value


Other financial assets - - 12,685 1


Trade receivables 47,611 1 - - Other financial assets

Listed equity securities - - 13,265 13,265 Unlisted equity securities - - 16,760 1

Derivatives for hedging purposes

Other financial assets 1,281 1,281 291 291 Assets at amortized cost

Financial assets at amortized cost

Cash and cash equivalents 1,109,883 1 - - Deposits held by financial

institutions 80,500 1

1,211 1,211

Trade receivables 3,678,401 1 - - Other receivables 545,431 1 243,485 228,662

Total 5,463,107 287,697

December 31, 2018 Current Non-current (in millions of Korean won) Book amount Fair value Book amount Fair value Liabilities at fair value


Other financial liabilities - - 1,862 1,862 Derivatives for hedging purposes

Other financial liabilities - - 73,998 73,998 Liabilities at amortized cost

Financial liabilities at amortized cost Trade payables 5,553,794 1 - - Borrowings 768,275 1 7,132,237 7,354,957 Other payables 2,371,053 1 1,011 929

Other liabilities

Other financial liabilities 6,453 3 7,899 3

Total 8,699,575 7,217,007

1 Excluded from disclosures such as fair value hierarchy and measurement method as the carrying amount is the reasonable approximate of fair value.

2 Lease liabilities were excluded from the fair value disclosures in accordance with Korean IFRS 1107 Financial Instruments: Disclosures.

3 Measured at the higher of the amount of the loss allowance determined in accordance with Korean IFRS 1109 Financial Instruments, and the amount initially recognized less cumulative amount of income recognized in accordance with Korean IFRS 1115 Revenue from Contracts with Customers.


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(b) Fair value measurements of assets and liabilities

i) Fair value hierarchy and measurement method

The fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The fair value measurement is to estimate the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. When measuring fair value using valuation techniques, the Company maximizes the use of market information and minimizes the use of unobservable inputs.

Financial instruments measured at fair value are categorized within the fair value hierarchy, and the defined levels are as follows:

- Level 1: Financial instruments measured at the quoted price in an active market for identical assets or liabilities are included in ‘level 1’. Assets or liabilities categorized within ‘level 1’ include financial instruments such as marketable equity securities traded.

- Level 2: When financial instruments are measured by using a discounted cash flow, if all significant inputs required to measure the fair value of an instrument are observable, the instrument is included in ‘level 2’. Assets or liabilities categorized within ‘level 2’ include financial instruments such as derivative financial instruments.

- Level 3: When financial instruments are measured by using a discounted cash flow, if one or more of the significant inputs are unobservable market data, the instrument is included in ‘level 3’. There are no assets or liabilities categorized within ‘level 3’.

The fair value of financial instruments traded in active markets is based on quoted market prices at the end of the reporting period. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, an entity within the same industry, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The quoted market price for financial assets held by the Company is the closing price at the end of the reporting period. These instruments are included in ‘level 1’. Instruments included in ‘level 1’ comprise primarily financial assets at fair value through other comprehensive income.

The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The Company uses various valuation techniques that the company develops or figures that external valuation agencies provide, and makes judgements based on current market conditions. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to measure the fair value of an instrument are observable, the instrument is included in ‘level 2’.

If one or more of the significant inputs are not based on observable market data, the instrument is included in ‘level 3’. Financial instrument included ‘level 3' uses other method including discounting cash flow method.


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ii) Financial instruments measured at fair value

Fair value hierarchy classifications of the financial assets and financial liabilities that are measured at fair value as at September 30, 2019 and December 31, 2018, are as follows:

September 30, 2019

(in millions of Korean won) Level 1 Level 2 Level 3 Total Assets Other financial assets


- Listed equity securities 9,339 - - 9,339 Derivatives for hedging purposes - 10,335 - 10,335

Liabilities

Other financial liabilities

Financial liabilities at fair value through profit or loss - 1,542 - 1,542

Derivatives for hedging purposes - 86,552 - 86,552 December 31, 2018

(in millions of Korean won) Level 1 Level 2 Level 3 Total Assets Other financial assets


- Listed equity securities 13,265 - - 13,265 Derivatives for hedging purposes - 1,572 - 1,572

Liabilities

Other financial liabilities

Financial liabilities at fair value through profit or loss - 1,862 - 1,862

Derivatives for hedging purposes - 73,998 - 73,998

The above fair value amounts are recurring fair value measurements.


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- Valuation technique and inputs for fair value measurements categorized within ‘level 2’

Valuation technique and inputs for fair value measurements categorized within ‘level 2’ as at September 30, 2019 and December 31, 2018, are as follows:

Fair value Valuation

techniques

Inputs (in millions of Korean won) September 30,

2019 December 31,

2018 Assets Other financial assets

Derivatives for hedging purposes 10,335 1,572 Discounted cash flow Discount rate and

exchange rate Fair value

Valuation techniques

Inputs (in millions of Korean won) September 30,

2019 December 31,

2018 Liabilities Other financial liabilities


1,542 1,862 Discounted cash flow Discount rate and

share price

Derivatives for hedging purposes 86,552 73,998 Discounted cash flow Discount rate and

exchange rate

- Fair value measurements categorized within ‘level 3’

At the end of the reporting period, no financial instruments measured at fair value are categorized within ‘level 3’.

iii) Financial instruments not measured at fair value but for which the fair value is disclosed

Financial instruments not measured at fair value but for which the fair value is disclosed as at September 30, 2019 and December 31, 2018, are as follows:

September 30, 2019

(in millions of Korean won) Level 1 Level 2 Level 3 Total Assets

Non-current deposits held by financial institutions

- - 1,583 1,583

Non-current other receivables - - 176,417 176,417

Liabilities

Non-current borrowings - - 7,718,585 7,718,585

Non-current other payables - - 1,082 1,082


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December 31, 2018

(in millions of Korean won) Level 1 Level 2 Level 3 Total Assets

Non-current deposits held by financial institutions

- - 1,211 1,211

Non-current other receivables - - 228,662 228,662

Liabilities

Non-current borrowings - - 7,354,957 7,354,957

Non-current other payables - - 929 929

- Valuation technique and inputs for fair value measurements categorized within ‘level 2’

At the end of the reporting period, there are no financial instruments that are not measured at fair value but for which the fair value is disclosed and categorized within ‘level 2’.

- Disclosure in relation to fair value measurements categorized within ‘level 3’

Valuation technique, inputs and unobservable inputs of financial instruments that are not measured at fair value but for which the fair value is disclosed and categorized within ‘level 3’ as at September 30, 2019 and December 31, 2018, are as follows:

September 30, 2019 December 31, 2018 Significant but unobservable

inputs

Range of significant but unobservable

inputs (in millions of

Korean won)

Carrying amount Fair value

Carrying amount Fair value

Valuation techniques

Inputs

Assets Non-current

deposits held by financial institutions

1,583 1,583 1,211 1,211

Discounted cash flow Discount rate Discount rate 0.1%

Non-current other receivables

186,750 176,417 243,485 228,662

Discounted

cash flow Discount rate and exchange

rate Discount rate 2.7%~3.7%

Liabilities

Non-current borrowings

7,404,598 7,718,585 7,132,237 7,354,957

Discounted cash flow

Discount rate and exchange

rate Discount rate 1.6%~3.1%

Non-current other payables

1,141 1,082 1,011 929

Discounted

cash flow Discount rate Discount rate 1.6%~1.7%


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32. Assets Classified as Held for Sale

(a) Details of assets classified as held for sale as at September 30, 2019 and December 31, 2018, are as follows:

(in millions of Korean won) September 30, 2019 December 31, 2018 Assets classified as held for sale Property, plant and equipment 2,920 - Investment properties 93,346 - Total 96,266 -

As at September 30, 2019, the sales procedure is in progress and is expected to be completed in 2019.

Assets held for sale are measured at fair value less costs to sell before the reclassification, and there is no impairment loss recognized.

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